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Urges Brass To Use Cash Pile To Acquire Company Worth At Least $1Bn

Bangalore: Infosys Technologies chairman K V Kamath has advised the top leadership of the company to go for a sizable global acquisition within the next few months to turn around the flagging market sentiment about the IT major.

    After Infosys’s annual general meeting on June 9, Kamath had a serious chat with key leaders at Infosys and advised them to use the company’s massive cash reserve for a buyout with a minimum ticket size of $1 billion. Infosys has a cash reserve of over $4 billion — more than twice that of TCS. 

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    “Kamath is known for his abilities for quick decisionmaking and risk-taking and he is upset that Infosys has been mostly attracting flak from the media, analyst and investor communities in the past few quarters. He feels the immediate best thing for the company would be a mega buyout. But it is taking time for him to convince the conservative Infosys board,” a senior executive in the company said. The executive did not want to be named. 

    Infosys has underperformed its peers in the past few quarters and has forecast an 8-10% increase in sales for 2012-13, compared to Cognizant’s 20%. Some analysts have said that Infosys may further lower its forecast because of delays in IT spending by its clients and adverse cross-currency movements. TCS, Wipro and HCL do not provide yearly forecasts but sound more optimistic than Infosys. 

    Kamath is said to have shared his experiences in building ICICI from a small banking firm in 1996 to the country’s second largest bank. 

    Quick decision-making, speed of execution and risktaking had contributed to ICICI’s success story. “He believes in a 90-day project execution cycle. He had urged Infosys leadership to cultivate some amount of risk-taking ability to accelerate growth,” said the executive. 

    At the AGM, even shareholders had demanded that the company use its reserves to either make big acquisitions or return a major part of it to shareholders through a special dividend. Infosys’s official position so far has been that a big reserve is particularly important now when the world economy is in the middle of very uncertain times. 

    Jagannadham Thunuguntla, strategist & head of research at SMC Global Securities, says, “People are running out of patience with Infosys. It’s high time the company disclosed its cash deployment plan to investors, else the market would perceive that its vision is getting blurred. Dozens of suitably valued companies are available for sale in the US and Europe. If Infosys can’t get a right buy now, then when?” 
    The company in July last year had announced what it called the Infosys 3.0 strategy that placed greater focus on consulting and products & platforms. But not everyone is convinced there is anything new or unique in its new strategy. “It was just a restructuring of its business, realignment of its domains and geographies and redeployment of its people. With 3.0, the company has lost is firepower. Or it has miserably failed to articulate its new strategy,” says another analyst. 

BID TO BOOST IMAGE 

Infosys has underperformed its peers like Cognizant in the past few quarters. It has forecast an 8-10% increase in sales for 2012-13, compared to Cognizant’s 20% 

TCS, Wipro and HCL sound more optimistic than Infosys on their revenue forecasts Infosys believes that the huge cash pile will help the company sail through uncertain times