I have previously written on my blog about the Infosys bubble. Last week there was a rumour that Infosys may bid for Cap Gemini a French services company. This act is nothing but an act of desperation based on exactly what I had predicted. I love blogs because they document lose talk.
Why is Infosys getting desperate ? high expectations from the market. For a company with a revenue of approximately 3.X billion, profits 1.3 billion and a market cap of 27 billion. Compare with Cap Gemini’s revenue 10.X billion, profits 400 million and a market cap approximately equal to revenue. Cap Gemini has a strong presence of 12,000 employees in India, many of them in Mumbai, where Infosys has minimal presence.
So what does Infosys get from this deal. Mainly revenue to maintain growth from Cap Gemini customers, convert the high Euro salaries to Rupee and Dollar salaries. At the same time, the Indian environment is catching up fast, rising salaries, ability to continously add quality manpower, lousy Indian infrastructure that takes a toll on the quality of living and life of Infosys employees. The politicians in India are trying to figure out how to make money from the next land deal rather provide world class infrastructure to the tax paying employees.
I had a chance to visit the Infosys campus in Pune last week. The facilities are five star, but all these add to the cost of doing business. The lower salaries also make the Indian employee unproductive, productivity improvement has not kept pace with rising salaries, customers are not paying more, dollar seems to be getting weaker.
For those who have had a nice Infosys ride, it time to sit back and think. Infosys is just an example, but the story remains the same for TCS, Wipro, Satyam etc. Those that believe the IT boom is forever, revisit it.