Thursday, July 26

Infosys bags $250-million Philips deal

INFOSYS Technologies, on Wednesday, took another step in increasing its footprint in Europe by signing a $250-million outsourcing contract with Royal Philips Electronics of the Netherlands. As part of the agreement, Philips will enter into a sevenyear contract with Infosys BPO which will provide finance and accounting (F&A) services and the processing of purchasing orders.
The deal, structured like an acquisition, also includes the taking over of Philips’ three shared service centres in Chennai, Thailand and Poland with 1,400 people by Infosys BPO. The latter will make an upfront cash payment of $28 million to Philips. Infosys BPO chairman TV Mohandas Pai told ET, “The cash payment is because Philips had invested in setting up the centres, IP and processes.”


Deal gives Infosys BPO centres in Poland, India and Thailand with 1,400 people

It will help BPO get third-party customers in finance & accounting and process purchase space

Philips now move into the top 5 customer league for Infosys

40% of Infosys BPO revenues comes from Europe

Growth facilitates people transfer

ET had provided the broad contours of the Infosys announcement on Wednesday in its edition dated July 25, indicating that the deal will not be an acquisition but more of a takeover of business with an assured revenue stream and a relatively small upfront cash for the captive operations.

On taking over a huge number of people, a first time for Infosys, Mr Pai said, “Now that we have grown into a sizeable entity, this is the right way forward for us to expand our business.” Hitherto, Infosys has been very conservative in taking over people in any of the deals unlike its Indian counterparts TCS and HCL.

This is the second large deal that Infosys has got from Europe, the earlier one being a € 100-million deal with ABN Amro which the IT services division had won in 2005. The deal with Philips, a new client for Infosys BPO, will expand Infosys’ global network, particularly strengthening its European operations. This also catapults Philips into the top 5 customers list for Infosys.

Amitabh Chaudhry, CEO of Infosys BPO, said: “Currently, about 40% of our revenues comes from Europe including the UK. This will only increase the contribution.” The company currently has a delivery centre in Czech Republic employing about 450 people, its only European presence in the BPO space.

This takeover will give it an additional centre in Poland with 700 people. The company, one of the top 10 BPOs in India, currently gets about 35% of its revenues from F&A and procurement areas. It employs 3,500 people in this space, and the number is set to increase to about 5,000 people with the Philips takeover.

The deal is earnings per share (EPS) accretive though for the first 12 months the operating margins of Philips’ business is expected to be lower than the current margins of Infosys BPO. The company has been in talks with Philips for the last six months. Infosys COO SD Shibulal said the company had won the deal against competition from global majors as well Indian offshore service providers.

Mr Pai said that Infosys BPO is looking at getting other similar deals as it has now got a very established corporate house in Europe. The Philips deal is expected to help Infosys BPO get third-party customers in the same space in the next 12-18 months.

Infosys BPO saw revenues of Rs 200 crore in the first quarter of FY08 while net stood at Rs 36 crore. It had earlier closed FY07 with revenues of Rs 662 crore.

It has 8 delivery centres spread across Bangalore, Gurgaon, Pune, Jaipur, Australia, China, Czech Republic and the Philippines. With the addition of three new centres, its head count will go up to about 14,000. The conservative Bangalore-based IT behemoth had earlier made only one acquisition. It bought Australian company Expert Information Services in 2004 for $23 million.

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