Infocrossing to boost Wipro revenues

With the Infocrossing acquisition, Wipro is expecting a strong boost in its revenues in the remote infrastructure management space.

Infrastructure management services (IMS) refers to maintenance, administration, troubleshooting and performance enhancement of the IT infrastructure of any organisation. Global players like EDS, IBM and Accenture dominate this business.

Indian players have introduced remote infrastructure management outsourcing (RIMO) which is predicted to exceed $8 billion over the next five years, according to Everest Research Institute. Nasscom says RIMO is a large and relatively untapped segment for offshore Indian vendors.

Paul Roehrig, principal analyst, Forrester, says: "Wipro has the broadest infrastructure management footprint of all India-based service providers. The acquisition of Infocrossing makes great sense and is exactly in line with its strategy for future dominance in the infrastructure management business." "Although Wipro may end up paying a rather hefty price for Infocrossing, this is a deal that makes sense for all involved, assuming that the integration is well managed," says Roehrig.

Dhanraj Bhagat, partner (corporate advisory services), Grant Thornton, reasons: "Even if the valuations are perceived to be high initially, the firms consider the long-term opportunity costs."

Clients gain in the bargain. Wipro, for instance, plans to pitch "offshoring, rather than just outsourcing" to its newly-acquired clients from Infocrossing. This should help clients reduce operation costs further. Industry sources say that Infocrossing's five data centres at customers' locations are the main assets that may have prompted Wipro to go for this acquisition.

Besides, the Infocrossing's customer base, which will now come to Wipro, is primarily in the US, Europe and Japan. "It would have been difficult for Wipro to expand its infrastructure management practice further organically, and this could have taken years to achieve," said a Bangalore-based analyst.

Infocrossing has about 900 employees in the US.

Infocrossing's BPO practice also focuses on healthcare and its integration with Wipro BPO will help the company to pitch for bigger clients in the healthcare space.

Wipro will soon make an open tender to acquire the 32 million shares jointly held by promoters, institutions and retail investors. The purchase will happen by December.

Incidentally, after the Unza acquisition, Wipro had a cash reserve of about $750 million. After shelling out $600 million for the acquisition of Infocrossing, the company will now be left with $150 million.

But the company says that it generates enough cash every quarter to finance the next acquisition. Industry sources suggest that in view of the rupee's appreciation, this was the right time to dispense with the cash to buy the US-based company.