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IT majors sit on growing cash mountain

Leslie D'Monte & B G Shirsat  |  Mumbai 

The top five Indian IT firms have piled up net cash in excess of Rs 20,000cr.
Riding high on a booming economy and growing outsourcing opportunities, the top five Indian information players "" Tata Consultancy Services, Infosys Technologies, Wipro, Satyam Computer Services and HCL Technologies "" have piled up net cash in excess of Rs 20,000 crore.
The net cash figure jumped 31 per cent to Rs 21,148.42 crore in 2006-07 from Rs 16,151.36 crore in the previous year. Analysts estimate the figure to increase by 60 per cent in the current financial year.
The logic lies in the revenue and net profit numbers of these companies. For instance, the total turnover of the five companies for the 2006-07 financial year stands at Rs 57,397 crore "" a jump of nearly 40 per cent over last fiscal's number of Rs 41,033 crore.
(In Rs crore)
2003-04 2004-05 2005-06 2006-07 2007-08*
TCS 631.96 1062.16 2058.48 3076.00 6987.53
Infosys 2798.51 2917.00 4372.00 6157.00 10181.20
Wipro 2243.47 2799.67 4060.23 5564.00 8174.36
Satyam 2469.79 3177.68 4092.25 4139.42 5565.53
HCL Tech 1600.37 1391.59 1568.36 2212.00 2835.00
(5 firms)
9744.10 11348.10 16151.32 21148.42 33743.62
Cash in hand includes bank balance, depreciation provision and investment in mutual funds; *Cash in hand in 2006-07 plus expected net profit for 2007-08 minus expected dividend payout in 2007-08
If these companies continue growing at this pace, their total income should surpass $20 billion by 2009, even factoring the rupee appreciation and wage inflation, say analysts.
The aggregate net profit of these IT firms increased by around 56 per cent to touch Rs 13,135 crore in the 2007 financial year. Accounting for analyst estimates of the net profit and likely dividend to be given to shareholders in the 2008 financial year, these five firms are expected to have Rs 33,743 crore as net cash "" a 59.5 per cent jump over the previous year's figure.
So, what are they doing with the money? Almost all of them said the best thing to do with their cash mountains was to turn them over to shareholders. The five companies paid Rs 3,391.50 crore as dividend to shareholders in 2006-07, against Rs 3,341 crore in the previous year (which includes a special dividend by Infosys).
They also plan to use the cash for capital expenditure requirements (which is not much since these are service firms), acquisitions and hedging against adversities. "As with any IT firm, we use it (cash) to pay dividend, for capital expenditure (capex) and expansion, to fund existing business and develop sale and marketing presence, for potential acquisitions and to hedge against adversities like a 9/11 kind of situation," said an HCL Technologies spokesperson.
A TCS spokesperson said the company uses the cash for capex, rewarding shareholders with dividends and funding inorganic growth.
IT firms generally dole out anywhere between 10 and 20 per cent of their cash reserves as dividend.
Wipro, on the other hand, has been using cash to acquire companies and plans to buy companies (each deal worth $100 million) in pharmaceutical and aviation sectors. The company, which is sitting on Rs 5,564 crore in cash, says it prefers the cash acquisition route to equity.
Infosys Technologies is sitting on the largest pile of cash (Rs 6,157 crore). V Balakrishnan, CFO, Infosys Technologies, said, "The robust financial model followed at Infosys allows the company to balance profitability as well as invest in growth and maintain the liquidity position." Infosys Technologies is also making substantial investments to scale up.

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First Published: Fri, April 27 2007. 00:00 IST