Event Update: Infosys Technologies

Event Update: Infosys Technologies
Comment E-mail Print Share
First Published: Wed, Aug 27 2008. 12 36 PM IST
Updated: Wed, Aug 27 2008. 12 36 PM IST
Infosys Technologies has acquired UK-based SAP consulting outfit, Axon Group Plc for a consideration of £407.1mn (Rs3,310 crore). The transaction is expected to close by November 2008.
Axon has around 2,000 employees and for the year ended December 2007, reported revenues of £204.5mn (Rs1,660 crore) and a net profits of £20.2mn (Rs160 crore).
Infosys’ management has stated that it expects the acquisition to accelerate the achievement of its key strategic objectives, most notably building scale in its consulting business, and enable it to bid for and win a greater number of ’transformational deals’.
This is by far the largest-ever acquisition made by the company and reflects its strategic intent to grow and develop stronger competencies in its Consulting business. While the deal is margin-dilutive in the short-term, it is likely to become EPS-accretive by FY10.
Deal valuation
On the valuation front, the acquisition works out to around 2x sales and around 20x earnings. In comparison, the Infocrossing acquisition by Wipro was made at 2.6x sales.
We believe the acquisition has been made with a clear strategic objective to ramp up the consulting business significantly. It also amounts to good use of the substantial cash pile that Infosys had of over Rs6,000 crore at the end of Q1FY09.
We believe that from a strategic perspective, the deal is a positive for Infosys, even though in the short-term its profitability and margins might take a slight hit.
At the CMP, the stock is trading at a P/E of 14.4x FY2010E EPS. We maintain a BUY on the stock with a target price of Rs2,124.
Comment E-mail Print Share
First Published: Wed, Aug 27 2008. 12 36 PM IST
More Topics: Stock Ideas | Money Matters | Equities |