| The announcement of the Expert Information Services acquisition, therefore, was a pleasant surprise. At the press conference, Chairman Narayana Murthy compared acquiring a company to falling in love, and said that you couldn't set a timeframe for it. |
| Although the size of the deal is extremely small by Infy's standards, it does send a message that the company is serious about using the inorganic route for growth. Expert's revenues last fiscal were $46.7 million, less than 5 per cent of Infy's projected revenues of over $1 billion for FY04. |
| Besides, the acquisition price of $22.9 million will use up less than five per cent of Infy's cash balance at the end of September 2003. Its free cash flow just in the September quarter stood at $69 million, more than three times the acquisition price. It's not very surprising then that the Infy stock was flat in Thursday's trading session. |
| But that doesn't mean that deal is inconsequential. Infy's presence in the high-growth Australian market (where Expert is based) will jump six times to over $60 million, or Rs 270 crore, based on FY03 revenues. |
| Besides, Expert brings with it expertise in not only the Australian market but also the telecom domain (74 per cent of its revenues). What's more, the acquisition has come rather cheap at just 0.67 times FY03 revenues and 4.4 times FY03 earnings. For a company that has been growing revenues at over 30 per cent over the last seven years, and which enjoys a net margin of 15 per cent, the deal seems cheap. |
| From Expert's promoters' point of view, they are now part of a company that's 20 times their size, which obviously means a lot of benefits in terms of marketing and other resources. Most importantly, Expert's promoter continues to be CEO of the Australian operations. |
| One interesting statistic is that Infy has looked at around 135 possible acquisition candidates over five years, before making its first acquisition. The point is, although the company is flush with funds and there is ample scope for many more acquisitions, one never knows how long the next one would take. |
| FII holdings |
| The current rally in the market is labelled the FII-led bull run. FIIs have pumped in Rs 14,794 crore in the October 2002-September 2003. Correspondingly, shareholding data for quarter ended September 2003 shows some significant changes in FII holding patterns compared to the corresponding period last year. |
| The data for 1976 companies excludes companies in the various stock market groups (A, B1, B2, T and Z) for which the BSE website did not have shareholding data either for the September 2003 quarter or the corresponding period last year. |
| In the A group as a whole, shareholding by FIIs increased to 7.39 per cent at the end of September 2003 from 5.41 per cent at the end of September 2002. Not surprisingly, FII interest has been restricted mostly to A group stocks for reasons of liquidity, quality of earnings and size. |
| This rally has also been called by some as the mid-cap rally. But there does not appear to be too much FII interest in smaller cap stocks. For instance, at the end of September 2003, FIIs' consolidated holding in B1 group stocks fell to 1.55 per cent from 1.90 per cent at the end of September 2002. |
| Similarly, in the B2 group, FII holding fell to 0.24 per cent from 0.41 per cent. An unanticipated fact, however, is that FIIs stake in the trade-to-trade (T) group increased to 0.85 per cent from 0.54 per cent. The increase in aggregate holding in the T group is mainly owing to heightened FII interest in companies such as Lupin, HFCL, Aftek Infosys, SSI Ltd, Kopran and Global Tele-systems. |
| The market has rallied around 22 per cent since the declaration of the September quarter results. It would be interesting to know the change in FII holdings at the end of the December quarter especially in the small and mid-cap stocks since FIIs have invested around Rs 13,558 crore since October 2003. |
| With contributions from Mobis Philipose and Sameer Ranade |
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