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Infosys’ Axon Bid for Stronger Bottomline

August 26, 2008

|Analysis of Infosys' Axon BidInfosys plans to acquire UK-based SAP consulting co. Axon Group plc (LSE:AXO) for US$753.1m at 19% premium to last closing price. Based on last 5yrs reported PATg of 68% & 08 consensus forecast EPS g 29%, deal likely fair at 15x CY08 consensus EPS. Axon could add 10% to Infy revs, take up Europe to ~30% of revs from 27% today & grow consulting /enterprise solutions to 30% from 24% today.

The potential Axon acquisition should be EPS accretive and strengthens Infy’s SAP consulting practice and client access in Europe. The deal is fairly valued at 19x 2007 PE & 5-yr PATg of 68% and 15x 2008 consensus EPS/EPSg of 29%. Assuming Infy’s post-tax return on cash at 7%, the deal should be EPS neutral this year and potentially EPS accretive going forward as margins improve through offshoring, cross-sell and scale.

The Telegraph reports that Other parties maybe interested in a counter bid to Infosys.

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