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Infosys Technologies - Meaningful if Lodestone first pearl in a string - BRICS Securities
Posted On : 2012-09-12 20:07:34( TIMEZONE : IST )
- Infosys acquires Lodestone AG for $345mn in an all-cash deal(2/3 rd of deal value to be paid upfront and remaining after 3 years)
- Lodestone presents a platform to improve Infosys' positioning in Europe and broaden its offerings in markets like the US
- Deal likely to be EFS accretive from FY14 onwards. Maintain Add.
Infosys acquired Lodestone Holding AG in an all-cash US$345mn deal -2/3rd of deal value to be paid up-front and remaining 1/3rd after 3 years subject to certain conditions. Lodestone offers SAP-enabled process optimisation and business transformation solutions through 850 employees (including 750 SAP consultants).
Deal to boost Infosys' consulting business: Lodestone acquisition fits in with Infosys' effort to ramp up its Consulting and System integration (CSI) business. After acquisition, the combined CSI practice will have revenues of more than $1bn with more than 31,000 professionals.
EFS accretion from FY14 onwards: Infosys indicated that the acquisition is likely to be EPS accretive after 18 months. Lodestone had revenues of US$219mn in CY11.
Minimal client overlap leads high synergy: Lodestone's client base of 200 has 'minimal' overlap with 711 active clients of Infosys. It derives 83% of its revenues from Europe (50% concentrated in Switzerland 23% in Germany) and 12% from Asia-Pac across industries including life sciences (28% of revenues), manufacturing (32%), and consumer goods (14%). Since Infosys is a comparative laggard in Europe, Lodestone presents a platform to improve Infosys' positioning in Europe and broaden offerings in markets like the US.
Outlook and valuation: The stock trades at a P/E of 15x FY13 and 14x FY14 on our earnings. We have not revised our estimates to factor the Lodestone acquisition due to limited financial data. We believe financial impact of the acquisition is not material as Lodestone revenues is 3% ofInfosys revenues, but the acquisition marks a certain breaking of 'mentalbarrier' and will be meaningful if Infosys follows it up with few more similar deals. Maintain ADD with target price of Rs2,350.
