Infosys Buys Philips' Captive Finance BPO Operations

India's Infosys Technologies Ltd said it is buying the captive division of Royal Philips Electronics NV's finance and accounting business process outsourcing unit for 28 mln usd.

As part of the deal, Infosys will enter into a seven-year contract worth 250 mln usd with Philips to provide finance and accounts (F&A) services.

India's second-largest software exporter, which has a cash reserve of 1.6 bln usd, will buy three of Philips' service centres in India, Poland and Thailand, with about 1,400 employees. Of this, 750 employees are in Poland.

'The deal will place us among the top five players in the F&A outsourcing space globally. We want to focus on the F&A space in BPO - a growing area,' chief financial officer V Balakrishnan told Thomson Financial News.

Analysts view the transaction as positive for the company though at least one brokerage said the deal would dilute margins over the next few months.

'Infosys BPO can now expect to win 200-250 mln usd deals given its increased capacity after this acquisition. Moreover, Philip's captive unit is spread across a few countries, especially in Eastern Europe, and Infosys has been looking at a nearshore in this region,' an analyst at BRIC Securities said.

Balakrishnan said: 'Europe is an important market for Infosys and we get incrementally more growth from Europe than anywhere else.'

On recent speculation that Infosys is seeking to buy Capgemini, Balakrishnan said the company is looking at further acquisitions globally, including Germany, France and Japan.

'To sustain growth, acquisitions of this size are important. Earlier on, we saw deal sizes of 50-100 mln usd but now it is bigger in size,' ABN Amro IT analyst Pankaj Kapoor said.

An analyst from Motilal Oswal Securities said the deal is likely to be margin-dilutive in the next few months, and is similar to rival Tata Consultancy Services's purchase of UK's Pearl Group insurers.

The Mumbai-based brokerage said the transaction signifies that Infosys has changed its traditional attitude towards acquisitions.

Another analyst said the deal would add only 50 paise to Infosys' full-year per-share earnings.

This is only the second acquisition in Infosys' 25-year history, after its 2003 purchase of Australia-based Expert Information Services Pty Ltd for 22.9 mln usd.

Infosys' BPO unit, formerly Progeon, currently has about 11,000 employees providing the company with round-the-clock processing. It had revenues of 2.0 bln rupees for the first quarter, contributing about 5 pct to the company's total revenue of 37.7 bln rupees during the period.

Infosys shares closed at 1,990.15 Indian rupees on the Bombay Stock Exchange, up 0.69 pct.