Hold Infosys; target of Rs 2720: Sushil Finance

“Infosys today announced a definitive agreement to acquire Lodestone Holding AG, a leading global management consultancy firm for an aggregate enterprise value of Swiss franc (CHF) 330 mn in all cash deal. The transaction is subject to anti-trust clearance expected to be received in October. As per deal, the 2/3rd of consideration to be paid up-front, while the other 1/3rd to be paid after 3 years subject to certain conditions. Lodestone advises global companies on strategy & process optimization, and provides SAP enabled business transformation solutions. By bringing more than 850 employees including 750 experienced SAP consultants, this acquisition will strengthen Infosys Consulting & Systems Integration (C&SI) capabilities. Lodestone will add more than 200 clients across industries including Manufacturing, Automotive and Life Sciences, to the Infosys pool of over 700 clients. Post-acquisition, the combined Consulting practice focusing on SAP programs will deliver $1 Bn+ Revenue, firmly establishing Infosys amongst the global leaders in SAP consulting.”

“Headquartered in Zurich, Lodestone Holding AG is a global consulting firm and pursues a value-adding combination of management and IT consulting. Founded in 2005, the firm has grown its employee base from 37 in 2005 to 850+ (including 750 SAP consultants) in 2012 and has presence in 17 countries on five continents. During CY05-11, its Revenue has grown from CHF 22 mn to CHF 207 mn (over 45% CAGR). Lodestone’s advisory services are primarily geared to the life science (28%), industrial manufacturing (17%), automotive (16%) and consumer goods sectors (14%). It derives 83% of revenues from Europe and 12% from APAC region.”

“Considering the size of Infosys, the acquisition looks smaller but certainly is one step forward in right direction for Infosys. Going forward, we expect the company to do similar kind of acquisitions in product/platform space in order to better utilize its idle cash to improve return on investments. As the acquisition is EPS accretive only after 18 months, we are not factoring its financial impact in our FY13E/FY14E estimates. The CMP of Rs. 2,505 discounts its FY13E & FY14E Earnings of Rs.163.7 & Rs.181.4 by 15.3x & 13.8x respectively. We change our rating to hold on the stock, and maintain price target of Rs. 2,720,” says Sushil Finance research report.

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