New Delhi: Indian IT companies are likely to step up acquisitions to strengthen their competitive position and boost slowing growth, a report by Standard & Poor’s Ratings Services said today. The rating agency said it believes access to new technology, entry into new markets and greater diversification through acquisitions can strengthen the business positions of Indian IT companies.
However, their limited track record in making large acquisitions exposes them to risks in integrating employees and businesses, it added. The report, ‘Moderating Growth And Rising Cash Put Acquisitions On Indian IT Companies’ Radar’, released today identifies two key drivers for acquisition — moderating revenue growth and access to new technology and new markets or business segments.
The high cash levels and low debt at Indian IT companies should help them seek opportunities to acquire larger companies than they have in the past, it said. “We expect the larger Indian IT companies to maintain their financial discipline and conservative leverage despite possible acquisitions,” said Standard & Poor’s credit analyst Abhishek Dangra.
“We also expect them to maintain their competitive edge on growth and margins over their global peers,” Dangra added. The report said increasing competition, a slowing global economy, and the already large scale of top Indian IT companies will result in moderate organic growth. “We expect revenue growth for Indian IT companies to remain at 8-12 per cent a year over the next one to two years,” said Standard & Poor’s credit analyst Ashutosh Sharma.
The rating agency said in its view, shareholder distributions by larger Indian IT companies are likely to remain moderate compared with their global peers. However, payouts by Indian companies are likely to be higher than historical levels, it added.