India IT firms seek buys to boost growth

Rostow Ravanan, Chief Financial Officer of MindTree, attends the Reuters India Investment Summit in Bangalore September 29, 2010. Mid-sized Indian IT services firm MindTree Ltd is looking to launch its 3G smartphone based on Google Inc's Android platform in the United States in the second half of this fiscal year, and expects fiscal 2011 revenue to top the industry average, Ravanan said.

BANGALORE (Reuters) - India's showpiece IT services companies are scouting for acquisitions in overseas markets as they focus on expanding geographical presence as well as client base to boost growth.

Indian outsourcers, especially the mid-sized companies, are also under pressure to add new services muscle as they compete with their bigger local rivals as well as global majors like IBM (IBM.N) and Accenture (ACN.N) for a share of the IT-services pie.

Tech Mahindra (TEML.BO), which provides IT services to telecom firms, is looking to acquire companies with revenue of $50-$100 million, particularly in the business process outsourcing sector, a top company official said on Wednesday.

"(We are) looking at buys where we can quickly ramp up international BPO," said L. Ravichandran, president of IT services at Tech Mahindra, at the Reuters India Investment Summit in Bangalore. "Prelim deal talks are going on."

Small- and mid-cap Indian IT companies are grappling with tepid demand, high attrition rates and a rise in expenses, resulting in strain on margins.

Companies such as Hexaware Technologies (HEXT.BO), MindTree (MINT.BO) and Mastek (MAST.BO) have also seen a slump in their net profit.

Indian outsourcing firms, which count Fortune 500 companies as their clients, have shied away from making big-ticket buys despite sitting on huge cash piles due to integration worries, lagging behind global peers such as IBM and Hewlett-Packard Co (HPQ.N).

Leaders in the $60-billion Indian outsourcing sector such as Tata Consultancy Services (TCS.BO) and Infosys Technologies (INFY.BO), which has cash reserves of $3 billion, focus mostly on smaller buys to fill a services gap or tap a new market.

"Conceptually, what we would like to add would be in the area of remote infrastructure management," said Rostow Ravanan, chief financial officer of MindTree.

Remote infrastructure management refers to maintenance of a company's information technology network from offshore locations. Clients in the developed markets outsource their network management to save costs.

"It's one of our fastest growing practices. If I can find a sensible deal, that area would be a higher priority for us to do an acquisition," Ravanan said.

FASTTRACKING INNOVATION

Companies like MindTree are also moving up the value chain to focus on higher-margin technology services and products, as intense competition in the traditional outsourcing space puts pressure on prices and erodes profit margins.

MindTree will join a select group of Indian IT products makers when it launches its 3G smartphone based on Google Inc's (GOOG.O) Android platform in the United States in the second half of this fiscal year.

Ravanan said MindTree was in talks with at least one major U.S. carrier for the launch of its smartphone announced in April.

"The hottest prospects for the phone are in the United States, followed by Latin America, Europe and Canada," he said.

(Writing by Sumeet Chatterjee; Editing by Unnikrishnan Nair)