Carlyle-Backed Cyient Scouts for Second Takeover in Year

Cyient Ltd., an Indian software services provider to the aerospace and automotive industries, plans to buy at least one more company this fiscal year, Chief Executive Officer Krishna Bodanapu said.

The acquisition would be its second in the year that will end March 31 and may have a value of “upwards of $10 million,” Bodanapu said in an interview in Hyderabad, where the company is based. The target “may be” in Europe, he said.

Cyient, backed by Carlyle Group LP, will use the 7.2 billion rupees ($117 million) of cash on its books to fund the deal, 38-year-old Bodanapu said. The company is considering targets in the energy-equipment and rail industries, he said. It generates minimal revenue from those sectors now.

“Acquisitions would be one way of getting the necessary skill-sets,” Bodanapu said. “There’s a lot of positive momentum at this point. We are seeing good growth, so we are poised for better times.”

Cyient shares rose as much as 5.5 percent today before closing up 4.6 percent in Mumbai.

Cyient, which has reported a slowdown in sales growth for two straight years, has acquired 11 companies since 1997, according to data compiled by Bloomberg. It bought Softential Inc. in March for $17 million, according to data compiled by Bloomberg. In August, it bought Invati Insights Pvt. Ltd. for $2 million, Bodanapu said.

‘Too Much Cash’

Cyient is not alone among technology services companies in hunting for deals. Infosys Ltd. is prepared to make “large acquisitions,” Chief Operating Officer U.B. Pravin Rao said, India’s Business Standard reported yesterday. Cognizant Technology Solutions Corp. agreed to buy TriZetto Corp. from Apax Partners for $2.7 billion in September to expand in health-care industry software.

Bodanapu said he expects sales to grow “slightly above 20 percent” this year, compared with 18 percent in the past fiscal year.

Shares of Cyient are up 41 percent this year, compared with the 16 percent gain in the S&P BSE Infotech Index.

Cyient has “far too much cash” for a company of its size, said Madhu Babu, an analyst at HDFC Securities in Mumbai with a “buy” rating on the stock. “It is hurting their return on equity. They can easily spend about 1.5 billion rupees on buyouts. It can be multiple small acquisitions instead of one big-bang deal.”

‘Not Traditional’

ROE was 18.3 percent in the year ended March 31, according to data compiled by Bloomberg.

“Cyient is not in the traditional IT services,” said Babu. “The engineering design business is not easy to enter, but once you do, you can stick on for years.”

The company is divided into two main units, one catering to utilities, transportation companies and governments and a second that serves engineering and manufacturing clients. It’s unusual among Indian IT companies in not having financial-sector customers.

The company changed its name from Infotech Enterprises Ltd. in May.

Cyient counts Boeing Co. and Pratt & Whitney among customers. The company gets about 45 percent of its revenue from from North America and about 21 percent from Europe, according to data compiled by Bloomberg.

First Carlyle Ventures Mauritius owned 9.9 percent in the company as of Sept. 30, according to exchange filings.

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