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TCS, Infosys Eying Healthcare IT Acquisitions in the U.S.

Posted on Tuesday, Nov 15th 2011

The $76 billion Indian IT outsourcing industry is facing some of its biggest challenges in recent years. With an average 12.9% increase in salaries in 2011, the country claims to deliver among the highest wage increases in the world. Competition from other countries and regions such as Latin America, the Philippines, and Eastern Europe is also on the rise. The Indian IT majors are looking for a fresh bout of growth through acquisitions into other regions and newer market offerings.

TCS’s Financials
Tata Consultancy Services’ (NSE:TCS) Q2 revenues grew 26% over the year to $2.52 billion. Net Income rose 15% over the year to $528 million. During the quarter, they added more than 12,580 employees to end with 214,770 employees worldwide. Utilization rates remained flat at 83.1% excluding trainees and 76.4% including trainees. Attrition decreased sharply for the company, dropping to 13.7% from 14.8% in Q1. Attrition in their IT Services business stood at 12.51%, while BPO attrition was at 24.25%.

TCS’s Acquisition Plans
Many Indian outsourcers are looking to acquire assets from other organizations to help expand their service offerings and their delivery locations. Last quarter, they submitted a $500 million bid for controlling stake in the IT unit of Lufthansa Airlines. A possible acquisition could add annual revenues of up to $2 billion for TCS.

TCS is also looking for acquisitions in France, Japan and the U.S. They are searching for healthcare companies in the U.S. as they do not have expertise in the segment in that country.

TCS’s stock is trading at Rs 1,131.00 (~$22.23) after having touched a 52-week high of Rs 1,246.95 (~$24.51) in April of this year.

Infosys’s Financials
Infosys’s (NASDAQ:INFY) Q2 revenues grew 17% to $1.75 billion compared with the Street’s expectations of revenues of $1.74 billion. EPS of $0.72 was also ahead of the market expectations of $0.69. They added 8,260 employees in the quarter to end it with 141,820 employees.

For the current quarter, Infosys projected revenues of $1.80 billion-$1.84 billion with EPS of $0.79-$0.80. The market was looking for revenues of $1.83 billion with EPS of $0.75. Infosys expects to end the year with revenues of $7.1 billion-$7.2 billion and EPS of $3.02-$3.06, ahead of the average estimated revenues of $7.1 billion with EPS of $2.88.

Infosys’s Acquisitions Plans
Infosys too has been looking for acquisitions and are eyeing deals upward of $700 million. News reports suggest that they are close to acquiring the healthcare business from Thomson Reuters at a price of $750 million. According to reports, the business had earned $220 million revenues from healthcare and science operations in the quarter ended in March of this year.

Another possible acquisition is that of data analytics firm, CoreLogic. California-based CoreLogic provides business and information services and data analytics within the property segment. They focus on providing information related to property tax, flood mapping, appraisal and default management, mortgage securities information, and credit solutions. CoreLogic’s Q2 revenues fell 4% over the year to $396 million because of the housing slump. Infosys is said to be a bidder for their data analytics segment.

The stock is trading at $57.21, taking the market capitalization to $32.69 billion. It touched a 52-week high of $77.92 earlier this year.

Wipro’s Financials
Wipro’s (NYSE:WIT) Q2 revenues grew 15.7% to $1.47 billion. Earnings grew 7% over the year to $278 million. For the current quarter, Wipro projected IT revenues of $1.50 billion-$1.53 billion, which represents growth of 2.0%-4.1% percent over the year. Analysts were looking for revenue growth of 1.5%-3.0% over the year.

During the quarter, they added 5,240 employees to end it with 131,730 employees in IT services. They added 44 new customers for the quarter.

Wipro’s Expanding Services
Wipro is working on expanding their service offerings and recently tied up with Workday. Workday is a leading provider of SaaS-based solutions for global human resources, payroll, and financial management. Wipro will provide Consulting and IT Services to clients deploying Workday solutions.

Their stock is trading at $10.03 taking the market capitalization to $24.49 billion. It touched a 52-week high of $15.78 earlier this year.

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