Indian IT firms to step up acquisitions to boost growth: Standard & Poor Ratings report

Indian IT companies are likely to step up acquisitions to make their competitive position strong and boost growth, a report by Standard & Poor's Ratings Services said on Tuesday.

The report, 'Moderating Growth And Rising Cash Put Acquisitions On Indian IT Companies' Radar', identified 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.

However, it noted a drawback too - the limited track record of IT companies in making large acquisitions that can expose them to risks in integrating employees and businesses.

"We expect the larger Indian IT companies to maintain their financial discipline and conservative leverage despite possible acquisitions. We also expect them to maintain their competitive edge on growth and margins over their global peers," said Standard & Poor's credit analyst Abhishek Dangra.

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% 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.

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