An Indian Company with Stakes in Some of the Most Exciting Unlisted Stocks...

Have you ever wondered why profitable and popular companies like Zerodha, Parle, Haldiram and the likes have not taken the primary route and get listed on the stock market?

Unlisted companies are a beautiful thing. The profitable and recognized ones in particular, as they present huge growth potential. They do not have to go through the rigorous examination that they would need to if they were listed on the stock exchange.

To put it simply, these companies can become much more profitable once they join the ranks of public companies by gaining a new investor and funding in the amount of money needed to get them there.

However, some investors don't want to wait that long, and they want to be a part of their growth story right from the beginning.

For those investors, one of the safest ways is by investing in companies that have a stake in start-ups and other unlisted stocks.

Turns out that some very well run bluechips have already taken the next step. They've been investing in startups and unlisted stocks for years. These bluechip companies look for startups that suit the megatrends they wish to ride.

In September last year, we wrote to you about once such company - Bharti Airtel.

In this article, we take a look at another bluechip company that has stakes in some of the most unlisted stocks - Infosys.

Investing in a brighter future

Tech companies are known to having the maximum exposure to several unlisted startups. For example Info Edge invested in nearly two startups every month in 2021.

Among the top IT companies in India, Infosys has made notable investments over the years and invested in unlisted stocks.

Let's take a look at some of the well-known and exciting unlisted companies which Infosys has invested in.

#1 Drone Startup - ideaForge

As there are not many listed companies in the exploding drone market, one has to look at the unlisted space to explore opportunities.

In the last 8 months, the number of drone start-ups has increased by 34% in India. It is the highest among other comparable economies.

One prominent startup in this space is ideaForge.

Founded in 2007, ideaForge has over 15 years of research and development (R&D) history and it owns more than 20 global patents.

It dominates the segment of security and surveillance with a 90% market share.

The Indian military, Adani group, L&T, IOC, Survey of India, Indian Railways, among others are its notable customers.

Back in 2016, Infosys had first invested in ideaForge to focus on unmanned aerial vehicle or UAV solutions (drones).

Five years later in 2021, Infosys made another investment of US$ 1 million or Rs 72 m in ideaForge.

This year in April, ideaForge raised another US$ 20 m in a Series B funding round in which Infosys also participated.

The drone startup continues to ride high on growth prospects as it has a strong order book. Recently, it overtook competition Tata and Israeli defence contractors Aerospace Industries and Elbit to receive a big order from the Indian army.

According to the company, one of ideaForge's drones takes off every six minutes, in the service of either the defence and security establishment or commercial users like oil companies, Indian Railways, or conglomerates like Adani and L&T.

If the company does get listed in the future, Infosys can make a killing as it has a stake of over 20% in ideaForge.

#2 Digital Marketing Startup - Oddity

Germany-based Oddity is a digital marketing firm, comprising digital-first brand management and communication, in-house production, including virtual and augmented reality, experience design and e-commerce services across Europe and China.

This year, Infosys completed the acquisition of Oddity. It will soon be folded into Wongdoody, a similar digital agency that Infosys acquired in 2018.

The acquisition announcement was first made in March 2022 when Infosys agreed to pay US$50 m or Rs 3.8 bn in an all-cash deal.

Think metaverse when you think about Oddity.

Indian IT companies are preparing for a surge in demand for technology services aimed at the metaverse. TCS, Infosys, HCL Tech, and Wipro are piloting new initiatives, building proof-of-concept and virtual laboratories to equip themselves for the metaverse.

Infosys is hoping to use Oddity's expertise in digital commerce services while asking Wongdoody to focus on marketing.Top of Form

#3 Life Science Consulting and Tech Startup - BASE Life Sciences

BASE Life Sciences offers management consulting services in the field of life science.

The Denmark based startup focuses on cloud-first digital platforms and data, to speed-up clinical trials and scale drug development. Collaborations with leading software technology providers gives it an edge.

In July 2022, Infosys signed an agreement to acquire BASE for up to €110 m in an all-cash deal.

Ravi Kumar, president of Infosys, was quoted saying,

• This acquisition augments Infosys' deep life sciences expertise, and expands our footprint further in the Nordic region and across Europe, and scales our digital transformation capabilities with cloud-based industry solutions.

Interestingly, the consulting segment of Infosys only contributes a fraction to its revenues. Still, the company focuses extensively on this segment which was started in 2004.

Over the years, it has made acquisitions of Lodestone in 2012 and Noah Consulting in 2015.

Lodestone's acquisition was for US$350 m while Noah Consulting was acquired for US$ 70 m.

By acquiring all these small startups, Infosys is adding value to the consulting segment and could reap benefits over the long-term.

#4 Salesforce Consulting Firm - Simplus

Simplus, based in Salt Lake City, Utah, was launched in 2014. The firm brings a wide range of salesforce consulting, training and integration services along with general salesforce expertise.

In February 2020, Infosys had first announced its plan to acquire Simplus for US$ 250 m.

In the same domain, Infosys had made an acquisition in 2018 when it purchased Fluido.

Both these acquisitions show that Infosys wants deeper expertise around salesforce to make that a key piece of its consulting operations.

#5 SaaS Provider Firm - Panaya

This acquisition is the most famous in Infosys' history of acquisitions.

In 2015, Infosys acquired Panaya, an enterprise resource planning (ERP) software company, for an enterprise value of about US$200 m.

SaaS stocks are the next big thing and Infosys knew this years ago when it acquired Panaya.

Now, why this acquisition is most talked about is because of its controversies. When the acquisition was announced, anonymous whistle-blower complaints claimed that the acquisition was overvalued.

That is why, after long consideration, Infosys had in April 2018, announced its plan to sell Panaya along with Kallidus and Skava.

But the sale plan did not proceed as the company found no takers.

Panaya's (and Skava's) acquisitions were considered as legacy investments from former CEO Vishal Sikka's tenure.

#6 Commerce & Analytics Firm - Blue Acorn iCi

Another big acquisition for Infosys happened in 2020 when it acquired Blue Acorn iCi, an Adobe Platinum partner in the US, and a provider in digital customer experience, for up to US$125 m or Rs 9.2 bn.

The acquisition was undertaken by Infosys Nova Holdings, LLC, a wholly owned subsidiary of Infosys.

Other Notable Acquisitions

These were just a few acquisitions that Infosys is known for. Apart from the above, the company has made investments in many more unlisted companies.

Here are a few:

Company Name	Expertise in	Acquisition Amount
Lodestone Holding AG	Consulting	US$ 345 m
Skava	Digital Experience	US$ 120 m
Fluido	Salesforce & Consulting	EUR 65 m
Kaleidoscope	Product Design	US$ 42 m
Guide Vision	ServiceNow Partner	EUR 30 m
Carter	Digital Design Agency	-

Data Source: Company Website, Annual Reports

Conclusion

If you ask market experts about large IT stocks and their view on them, they'll be like, IT bellwethers like Infosys and TCS have become elephants.

'They are good if you fancy dividend stocks. They can no longer help you generate market beating returns'

Their concern is understandable as for large IT companies, it becomes difficult to grow organically.

But if they go down the inorganic route and go big on acquisitions, they'll have enough technology pool with them and enough tailwinds to ride on.

To conclude, there's no denying that large corporates like Infosys among others, can do far better due diligence of the startups especially from the technology and R&D perspective than we as individual investors can.

However, as with any other investment, make sure you do your due diligence.

In this case, see whether the unlisted company is generating stable revenues and profits. Because many of these unlisted companies and startups will be loss-making.

Watch this space for more and look forward to our next piece on another company like Infosys and Bharti Airtel that could be a great way to play the startup opportunity.

In the meantime, you can check out Tanushree Banerjee's video where she talks about the safest way to profit from unlisted stocks.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...