India's Infosys shares rally after Axon Group acquisition
Shares in Infosys Technologies rose more than 2 percent in a weak Mumbai market on Tuesday after India's second-largest software services exporter agreed to buy a British technology firm.
Wood Group profit up 39 pct as sales and margins riseAnalysts said the acquisition would give the Bangalore-based company access to new clients and help boost its presence in the fast-growing European market at a time when India's services exporters look for growth beyond a slowing U.S. market.
"The deal looks very good from a long-term perspective," said Harit Shah, a sector analyst with Angel Broking in Mumbai. "It will turbo-charge their growth in Europe and give them access to a very good set of clients."
At 6:52 a.m. British time, shares in Infosys were up 1.3 percent at 1,725 rupees, after having risen as much as 2.2 percent, in the Mumbai market that was down 0.7 percent.
Infosys said on Monday, after the market had closed, it had agreed to buy consultancy Axon Group for 407 million pounds.
The all cash deal values Axon about two times its revenue in 2007, which was 204.5 million pounds, and 20 times its net profit of 20.2 million pounds.
"The deal is certainly not cheap, but it's not highly expensive as well given the kind of synergies that Infosys will get," Shah said. "This will give much better returns on the cash they were sitting on for a long time."
Infosys has been criticised for holding back on acquisitions despite sitting on a cash chest of about $2 billion. Its smaller rival Wipro has used its cash reserves to seal a string of acquisitions in the past two years.
FOCUS ON EUROPE
Kotak Securities said Nasdaq-listed Infosys would gain marquee customers, wider reach, ability to bid for larger deals and Axon would benefit from the financial muscle and enhanced delivery capabilities of the Indian firm.
It said closing the offer and effectively integrating Axon would be the key challenges for Infosys in the medium term, while retaining its "buy" rating on the stock with a price target of 2,027 rupees.
"Axon is a strategic fit for Infosys, which has been consistently looking to expand its consulting and package implementation capabilities and also its presence in Europe," Kotak said.
Last month, Infosys CEO Kris Gopalakrishnan told Reuters the company planned to cut dependence on the United States to about 40 percent from more than 60 percent now, as a slowdown in the world's largest economy hits outsourcing deals.
Infosys, which got 63 percent of its revenue from the United States in the June quarter, planned to boost contribution from Europe to 40 percent from 27 percent, while other markets would account for the remaining 20 percent, he had said.
Infosys, which develops applications, designs supply chains and offers back-office services, counts ABN AMRO, Goldman Sachs and Philips Electronics among its more than 560 clients.
Analysts say the acquisition would boost Infosys' presence in the high-margin technology consulting business, a segment Indian companies are focusing to win large global deals.
Infosys expects its consulting business unit to break-even in the current financial year ending in March, Gopalakrishnan had said. The unit reported a loss of $13 million last year. Last month, Infosys, which the market values at $22.5 billion, reported a 21 percent rise in quarterly profit but warned of challenging times ahead as its major Western clients battle weakening economies.
(Editing by Ranjit Gangadharan)
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