Infosys seeks blanket nod for overseas acquisitions
Infosys has become the first company to seek blanket permission from the government for overseas acquisitions under the new norms for software companies.
During the last week the government had opened the automatic approval route for software companies to fund acquisitions abroad. However, the facility was made available only to those companies that had already floated ADRs/GDRs and the annual acquisition limit for each company was set at $100 m.
A world leader in providing IT consulting and software services to Fortune 1000 companies, Infosys offers software services such as application development, re-engineering, software maintenance, Internet consulting and package implementation.
While floating its ADR issue the company had clearly stated that one of the objectives of floating its ADR, was to acquire companies abroad. However, over the last five months despite scouting around for opportunities it hasnít been able to find a worthy acquisition. The company has been keen to deploy its resources since the cash from its ADR issue has been generating returns far lower than what its software services business generates pulling down its return on equity.
If Infosys were to get the permission for acquisitions over $100 m that could positively impact, the sentiment but to expect anything beyond that would be unrealistic.
Despite the stock trading at a historical peak, given the potential from acquisitions, overseas development, e-commerce thrust, the upside remains. Perhaps the only grey area could be a de-rating of the sector as a whole, which doesn't seem likely at the moment. Further, with the scrip having a 17% weightage in the sensex, it will be very difficult for any fund manager to ignore the stock. It is for these reasons that the analysts continue to recommend the stock.
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