Hughes Software Focussing On Acquisitions In A Big Way

Arun Kumar has been serving Hughes Software Systems Ltd as its president and managing director since January 1995.

Arun, an alumnus of IIT, Kanpur is credited with much of the success in expanding HSS' business to newer markets and leading it into the business of products. In this interview with The Hindustan Times correspondent Arun Kumar, HSS chief elaborates on the big acquisition plans of the company in both Indian and the overseas markets.

In September last year, when Hughes Software Systems went public, you had announced that the company would go for acquisitions. What is the progress on that front?

 

Apart from organic growth of 70 per cent plus in the current fiscal, the company is also looking at acquisitions aggressively. And in that pursuit, we have already appointed two consultants PricewaterhouseCoopers and Kotak Mahindra to find out the suitable companies. But at the same time we have very precise objective. Any acquisition or merger should give enormous benefits to the company. We will be very selective in nature. In fact, 70 to 80 per cent mergers in the global market have failed. We are looking at three different domains which will give natural synergy to the existing business profile of HSS. The companies should be engaged in the business of telecom softwares and it should also bring key customers base which will help our existing customer profile. This apart, the company is also looking at such companies which are engaged in internet business.

Have you identified such potential companies and have started discussions? Will these acquisitions be limited to India or even cover overseas market? These two consultants have already presented few cases. We are analysing the pros and cons of acquisitions of these companies. We can only say that the merchant bankers have started discussions with "handful" of companies. As far as overseas acquisitions are concerned, we are looking at those companies who have strong Indian presence. These companies should be based in India but in case they have offices in the overseas market, it would give added advantages.

Since the company had raised only Rs 55 crore through the public issue, how would you fund these acquisitions and what is the time frame to complete the transactions?

Though the amount raised through the public issue was not substantial, but the company is generating substantial cash (net profit) every year. Currently, company has cash surplus in the range of US $ 25 -30 million. Apart, if opportunity arises, we can raise debts also. And the third option is the share swapping route.

But the promoters have already diluted their stakes to 56 per cent, in case the company opts for share swapping route, it may force the parent company to dilute its stake to below 51 per cent. Don't you think that it would restrict the inorganic growth of the company? (Out of the total amount of Rs 275.62 crore, Rs 220 crore was raised by existing shareholders against offer for sale).

As I said, we are looking at the combinations of three -- cash, debt and sha res swapping route. in the present scenario this gives enough scope. Seco ndly it also depends upon the opportunities. I don't think the promoters stake in any way restricts our growth.

Is there any move to split the face value of HSS shares? Are you also planning to list the company in the overseas market?

In order to increase the liquidity, we are certainly looking at those angles but when and how, we are still not certain. Meanwhile, we have decided to go for compulsory demat. The company has already written to the Securities and Exchange Board of India and expecting to achieve this by first quarter of next fiscal.

As regards listing in overseas market, as of now we do not have any such plan. Our on-site operations are not very significant. Primarily, the business model of HSS is offshore in nature. The number of employees working in the US market is just eight which we are intending to double shortly. Therefore, the company has no major driving factor like ESOP for overseas listing.

Other than acquisitions, what are the investment plans of the company?

The company has planned for making an additional investment of US $ six million next fiscal (2000-01). We are enhancing the capacity in both Delhi and Bangalore facilities.

What is your views on the current boom in IT sector? Will it last or it is a temporary aberration? There are two sides of this boom. First, the actual growth in IT sector and second the share market boom particularly in the IT stocks. As far as the IT growth is concerned, the fundamentals are strong and will remain very strong in time to come. There is no doubt that the demand of IT products and services in global market will increase tremendously. Indian companies have already proved their credibility in the global market.

What are the factors that go against India particularly in the IT Sector?

Infrastructure is one of the major areas which hold us from becoming world super power in the IT sector. The Government has made some attempts to sort out these problems. But, now one has to realise the difference between attempts and facilities being provided. Indian infrastructures are one of the costliest in the world. If you want to increase growth rate in IT sector, the rates have to come down substantially