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Infy may not see short-term gains

Infosys Technologies’ (Infosys) acquisition of Axon Global may not result in any immediate rise in earnings of the IT bellwether, but could see a dent in its key financial ratios.

india Updated: Aug 26, 2008 20:46 IST
HT Correspondent

Infosys Technologies’ (Infosys) acquisition of Axon Global may not result in any immediate rise in earnings of the IT bellwether, but could see a dent in its key financial ratios.

Though the Indian IT giant has succeeded in adding a few well-known companies to an already-rich list of clients, the onsite business model of the British technology consulting company is likely to work against the acquirer.

“It is going to be neutral on earnings per share (EPS) in the near term. In an onsite model there is not much cost advantage as you pay in the same currency you earn in,” said Manish Sonthalia, vice-president (equity strategy), Motilal Oswal Financial Services.

What looks worrisome in the near term is that incorporating Axon numbers in its profit and loss account is likely to push down Infosys’ return on equity. While Infosys has a return on equity of around 37 per cent for the current financial year, that of Axon is pegged lower at 29.5 per cent.

Return on equity is a measure of a firm’s efficiency in profit generation on its net asset. It is arrived at by dividing net income of the company by its total equity. However, analysts expect Infosys to gain from Axon acquisition in the long term.

“It has added some high-profile clients like Honda, Ford and Nissan along with some big names in the pharmaceutical sector,” said Sonthalia.

Infosys, which derives about 60 per cent of its revenues from the US from clients, acquired British technology consultancy company Axon in an all-cash deal of $753 million.

Infosys shares closed marginally down at Rs 1,679.60 (down by 0.32 per cent) on the Bombay Stock Exchange.