IT offshoring firm Intelligroup, in which SAIF and Venture Tech (an investment vehicle of iLabs) hold 62% stake, is hitting the market for a strategic sale. The sale would pave the way for an exit for the venture promoters in Intelligroup, said a source familiar with the development.

One of the largest ERP providers, Intelligroup has attracted the attention of mid-tier Indian firms like MindTree and Patni Computer amongst others. In fact, 70% of the company’s revenues come from the ERP business.

It could also be the target of a cross-border, or inbound acquisition, given the company's offshoring story and strong positioning as domain specialists.

A strategic sale is possible in the next four to six months time, said a banking source, who said informal discussions were going on currently.

E-mails sent to Intelligroup CEO Vikram Gulati elicited no response at the time of filing this story.

The company, which is registered in the US and listed on the OTC Bulletin Board (OTCBB) could be looking at $150 million valuation. In 2008, Intelligroup had posted $157 million in revenue, but that is seen dropping during 2009 as clients cut back on technology spend.

Its revenue in the first nine months of 2009 stood at $93 million compared to $119 million in the year ago period. Another challenge is the company's operating margin estimated at around 8%, which is well below the industry average. In fact, the margins recovered in recent times after being under 5% in 2007.

"The earnings somehow do not stack up given its rather strong business positioning. At below 5%, it was not going anywhere, and at current levels it is still below industry average," said a source who explained the valuation challenges facing the firm.

"It is probably a target for inbound acquisition, for someone who is looking at a strong offshoring story. The Indian firms are unlikely to put the asking valuation on the asset," the source added.

MindTree Consulting is believed to have looked at the company even though talks have not progressed on valuation concerns. Patni Computer also dropped out after initial parleys, said sources familiar with the developments.

In 2008, Intelligroup had close to 2,000 employees with 75% of them located in India. Its main market was the US accounting for 79% of the annualised revenue, which was well-spread across verticals like consumer products, manufacturing, high tech, lifesciences and media.

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