IT spend on infrastructure spurts

By agencies   |   Monday, 13 June 2005, 19:30 IST
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CHENNAI: Top Indian IT companies are using cash that they have generated to invest in newer infrastructure. While that is what all companies do typically do when the going is good, the spend seems significant given that cash and cash equivalents have not grown as much as at March 2005 compared to the previous year or two. Interestingly, smaller companies seem to have used the time last year to recoup ground lost during the U.S. spending slump. Their cash positions have improved. Companies are certainly investing in infrastructure. Take Infosys for instance. While growth of cash and its equivalents has slowed considerably, it added fixed assets (including land, buildings, furnishing and computers) worth Rs 7.28 billion for the year ended March 2005, which is just more than double the amount used up in the previous year. Media reports have also cited Infosys' keenness to set up 10 million sq ft of land for 44,000 additional seats over the next two years. Given the significant accretion of cash over the years, the industry has been perceived as conservative. Asked if the industry is now feeling good enough with the a certain level of liquid cash and if more than usual investments are being pumped into infrastructure and acquisitions, Mohandas Pai, CFO, Infosys, said: "Growth (in cash generation) has not slowed down, but the cash has been used for capital expenditure, dividend payment and working capital. Our position on cash has not changed and that is: it should be a minimum of 25 percent of revenues and 40 percent of balance sheet size. We have a return minimum to make sure that we earn adequately on the total assets." Wipro also did not see as high a growth in cash and cash equivalents this year as it did the last year. A spokesperson said, "We have not defined any optimum level of cash for the company." He added that the perceived slowing growth of cash accretion was "primarily on account of the base effect." This means, as the base of cash and cash equivalents continues to grow, the incremental cash added as a percent of total base shows a declining trend. "We intend to use the cash for strategic objectives, including mergers and acquisitions." Wipro Ltd added Rs 5.15 billion worth of fixed assets in the year ended March 2005 compared to Rs 3.66 billion earlier. Smaller companies have seen their cash positions grow. Mastek has shown higher growth between March 2003 and March 2004 compared to growth between 2003 and 2004. Polaris, which acquired Orbitech in calendar 2002, returned to growth in cash at hand as at March 2005 after seeing a slump in the previous year. Likewise, iGate, which had earlier been through some rough times, saw a return to growth in cash and cash equivalents after a slump for the previous year.

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