Several major Indian outsourcing firms turned in lackluster financial performances in the first half of 2007, thanks largely to the rupee's gain against a weak dollar. But the strong rupee, coupled with robust market capitalizations, should help Indian firms that want to buy foreign operations to help them grow their business.
Their primary hunting ground is in Europe, where demand for outsourcing is growing strongly as the demand in North America softens. Tata Steel kicked off the buying binge back in February with its $12.9 billion purchase of the Anglo-Dutch steelmaker Corus.
Infosys recently bought three back-office operations from Philips Electronics in Poland, India and Thailand, and was reportedly in the market to buy European outsourcing giant Capgemini -- though both companies denied those rumors.
Infosys' CFO did tell The Economic Times that his firm would be interested in expanding its presence through acquisition in countries like France and Germany -- even if it had to spend a premium to do so.
Their relatively low market capitalizations make European firms like France's Atos Origin --trading at 13 times its projected 2008 earnings -- look like good buys for Indian firms with much higher valuations, such as Tata Consultancy Services, which is trading at 22 times its forecast 2008 earnings.
According to a Credit Suisse analyst, Indian companies may be waiting for a wave of consolidation among European services firms to subside before getting out their checkbooks. Just last week, Dutch telecoms group KPN bought IT services firm Getronics and France's Steria purchased the UK's Xansa.
Captive operations of European companies like Siemens' and Deutsche Telekom's T-Systems could also be attractive acquisition targets, reports the Economic Times. Some companies have found captives less cost-effective than expected, and thus may be eager to sell.
The CEO of the neoIT consulting firm says he expects at least one major purchase by an Indian services firm in the next year.