Assured revenues of $500 million will come in handy at a difficult time.
Wipro’s acquisition of Citi’s India tech arm—Citi Technology Services-- is well-timed and not really expensive. An assured order of $500 million at a time when deals may be difficult to come by, can only be good news.
At around 1.6 times trailing sales, the acquisition in cash is reasonably priced—Wipro has paid $127 million for the business which posted revenues of around $80 million in 2008.
At the end of September 2008, the company had cash reserves of Rs 5,960 crore, so paying for the buyout will not be an issue. The Citi deal should help Wipro beef up its presence in the banking and financial services (BFSI) space. The target company does work in the technology infrastructure services space as also application development and maintenance and the Rs 19,957 crore Wipro should be able to leverage these services with other clients.
The IT services space has been facing headwinds in a slowing global economy and IT spends are expected to be pruned. According to a report from Gartner, spends by companies in the worst case scenario could decline in calendar year 2009; the best that can be hoped for is a growth of around 6.5 per cent.
Wipro’s IT revenues were up 7.8 per cent sequentially in the September 2008 quarter, helped by the depreciating rupee. In dollar terms the growth was about 4 per cent. The operating margins for the firm were flat sequentially at 21 per cent.
The BFSI segment grew by 7.7 per cent q-o-q while the technology, telecom and media segments contracted in dollar terms. The management has said revenues may grow by just about one per cent in dollar terms in the December 2008 quarter.
