Infosys - Lodestone deal a small step in right direction: analysts
Infosys' acquisition of Lodestone has received a thumbs-up from analysts who track the company and the IT sector closely. Investors have criticized Infosys in the past for its aversion to acquisitions despite holding nearly $4 billion in cash, and its inability to make progress in consulting to compete with rivals IBM and Accenture.
Infosys has struggled this year. It has missed its sales targets, lost market share to local rivals, put off an annual pay rise and seen its stock battered. But, the Lodestone acquisition may trigger a re-rating of Infosys in the medium to long term, analysts said.
Here's how major brokerages view the Infosys-Lodestone deal.
Equirus securities:
Bhavin Shah says Infosys wants a third of their revenue from application development and maintenance, which is an important part of their business, but the additional growth has to come from two areas - consulting and platform development.
K R Choksey Securities:
Deven Choksey says Infosys is testing the waters and not taking too much of a risk right now, which is not a bad strategy. It is not so much bottom line accretive, but it might just be the beginning.
IIFL:
Aniruddha Mehta told NDTV Profit that the deal will help Infosys in sustaining the revenue momentum going forward considering the weak environment we are in. The deal is good from strategic and valuations perspective. The deal is cheaper when compared to the Axon deal for which HCL Tech paid about 2-times revenue.
Kotak Securities:
Dipen Shah says the acquisition is at about 1.3-times 2012 revenues. Margins for on-site consulting companies are normally below 10 per cent. To that extent, the acquisition will likely become accretive in a few quarters, which is a slight departure from Infosys’ earlier strategy on not looking at acquisitions which would dilute earnings in the short term.
The acquisition is not likely to make any significant difference to the overall financials as the revenues of Lodestone are less than 5 per cent of Infosys’ projected FY13 revenues.
(With inputs from Thomson Reuters)