INFOSYS’ TAKEOVER OF AXON

Infosys' takeover of Axon for approximately 3300 cr signifies a major change in mindset of India's best software company. This shift augurs well for shareholders of Infosys, since not only is it getting an increased presence in the European markets, it is also cementing its position in the field of business consulting.

The valuation also looks fair at 20 times Axon's last year earnings and less than 2 times revenues, the earnings yield works to 5 %. Considering that Axon has been growing its revenues at 65 % compounded for several years is the proverbial icing on the cake. If such high growth rates can be sustained and enhanced due to the takeover, the acquisition makes even more sense and could prove to be a real winner for Infosys.

Consider also that the acquisition is being funded entirely through reserves and not through additional debt or equity. This improves the quality of Infosys' earnings since it boosts income from operations at the cost of other income.

The greatest positive is that Infosys has clearly taken on a strategy of aggressively boosting its revenues and profits, if need be at the cost of margins. It heralds the beginning of the 2^nd innings in the history of Infosys and with several factors like the exchange rate turning in its favour, Infosys looks like a great buy at current levels.