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Ambitious Infosys hives off products biz to boost growth

business Updated: May 12, 2014 23:29 IST
HT Correspondent
HT Correspondent
Hindustan Times

In a quiet fine-print to its annual financial statement last month, software giant Infosys said it spun off its products, platforms and solutions (PPS) division into a new subsidiary, Edgeverve Systems Ltd.

The new identity signals that this could be a prelude to an eventual IPO, induction of private equity or a joint venture.

However, Kotak Securities analyst Dipen Shah said an IPO, if at all, will come after more growth.

“Hiving off a business means that it is given special focus. If there is a higher growth in PPS it will improve overall profitability of Infosys since it is a higher profit margin business,” Shah said.

Infosys has already signalled the PPS unit would be looking for acquisitions

The hive-off needs approval from shareholders, which is expected on June 14, four months after the incorporation.

In 2002, Infosys had set up its business process outsourcing (BPO) arm as a separate company called Progeon in which the private equity arm of Citigroup took a 23% stake for Rs. 100 crore. Infosys bought it back in 2006 for Rs. 518 crore and named it Infosys BPO. In 2008, it listed OnMobile, a grown-up version of Onscan it acquired in 2000.

An Infosys spokesperson said Edgeverve’s CEO is expected to be named after the AGM. Senior vice-president Sanjay Purohit, who currently heads the PPS unit, is expected to take charge.

Infosys focuses mainly on its services business, but the PPS unit accounts for 5% of annual revenue, which at around R 670 crore has the size and scope of a mid-sized product company.

Nithin Padmanabhan, analyst, Espirito Santo, said PPS was strategic as it had multiplied its customers from 11-20 in 2011 to 100 now, with revenues multiplying nearly seven-fold to $800 million.