Infosys slips on Axon counter-bid buzz

India’s second-largest IT services provider, Infosys Technologies, today gave up gains of over 2 per cent to close 1.7 per cent down at the close of trading on reports from a London-based securities house which said that the IT major could face a counter-bid to acquire Britain’s Axon Group.

The company’s ADR price was also down 4 per cent at $39.9. Infosys plans to buy out the UK-based SAP consulting firm for around Rs 3,300 crore. A counter-bid could increase the price, and make the proposition less lucrative for the IT major.

The analyst community is divided in its opinion on the valuation of the deal.

“There is certainly a section of the market that feels that the valuations are very high. Axon’s valuations are almost 17 times its CY08 earnings. This is the same as Infosys’ FY09 valuations. Moreover, the Axon management has acknowledged that its European business will be slow compared to other markets in the future. Its Europe penetration is already at 16-17 per cent. So even the business growth in Europe is a bit ambiguous,” said a leading analyst of a brokerage house.

Besides Axon’s net profit margins were at 9.9 per cent, while Infosys reported a net margin of 26.8 per cent for the quarter ended June 2008. The actual impact on margins will only be evident in FY10. But there are others who differ. According to them acquiring a SAP consulting firm twice its revenue is a fair deal.

“The deal has no significant EPS impact, but will have a huge strategic impact. We feel that the deal is quite fair. But what remains to be seen is that how will Infosys leverage on this acquisition,” said Anil Advani, head of research, SBI Caps. “We expect Infosys to report a revenue growth of 32.74 per cent and 30.67 per cent in FY09 and FY10, respectively,” opined analysts at Prabhudas Lilladher.