With the acquisition of the Ireland-based Microsol Holding, through its subsidiary, Crompton Greaves (CG) has made further strides in its objective to expand globally in the power systems and solutions business. This leaves the company with three foreign acquisitions between 2005-07. While the first two companies, Pauwell and Ganz, helped CG move to higher-end transformers, the current acquisition may well aid the company move up the value chain in the power business. Microsol Group provides high-end automation services for new sub-stations and retrofitting services With this, CG has primary transformer solutions under one roof to compete with global majors such as ABB and Siemens in their respective product spaces.
The trend in Crompton Greaves' acquisitions is quite evident. Similar to the earlier two acquisitions, Microsol has also had operating losses in FY-2006 (reported to have made profits in FY 2007), badly in need of cash infusion but with strong expertise in its area of operations. CG has demonstrated its ability to turnaround the operations of Pauwel, its acquisition in 2005, wherein profits before interest and tax more than tripled and return on capital employed grew from 4 per cent to 20 per cent within a year. CG also expects the operating profit margins of the other acquisition — Ganz to move from negative territory to 8 per cent by the end of CY-07. Crompton Greaves had a healthy Rs 250-crore cash flows from operations in FY-06 and managed its earlier acquisitions through internal accruals. While it is not clear as to how it will fund the recent one at the enterprise value of euro 10.5 million (Rs 55 crore), there is not much concern on this front, given the company's low debt-equity ratio.
CG's acquisitions would equip the company with a competitive product portfolio, superior technology and ready manufacturing units that are likely to provide the company a smooth foray into the markets of Europe and North America. This would also enable de-risk the company from any slowdown in the Indian business.
NIIT Technologies: Strong wicket
For NIIT Technologies, FY-07 has been a good year with revenues growing by 46 per cent and profits almost doubling since last year. The operating profit margin has risen steadily to 20 per cent this year from 15 per cent in 2003- 04. Concentration on select verticals, inorganic growth, a turnaround in the BPO Solutions segment and increased utilisation rates have all contributed to the good financial performance.
The successful integration of Room Solutions, a UK-based insurance solutions provider, acquired in May 2006 has strengthened the BFSI vertical. Contribution to revenues from this segment has grown to 42 per cent from 33 per cent. The acquisition has also been EPS accretive. The company's geographically-diversified revenue model has seen Europe bringing in 50 per cent of the revenues in FY-07; this augurs well in an environment where a rising rupee-dollar exchange rate is seen as a risk to IT earnings. The company has also had a strong order intake of $72 million in Q4. The joint venture with Addeco SA, a Fortune 500 company to deliver application software development and maintenance solutions to its clients, will be operational by July 1, 2007. Increased offshoring arising from this JV and improved billing rates are expected to improve margins in the coming year.