Infosys Ltd has made another small acquisition, this time of an Australian-based outsourcing company. Portland Group Pty Ltd is a provider of strategic sourcing and category management services, with revenues of A$31.3 million (US$31.7 million) and an employee count of 113.
The acquisition price isn’t steep at around 1.2 times revenue and 5.7 times earnings before interest, tax, depreciation and amortization (Ebitda). According to a report by Prabhudas Lilladher Pvt. Ltd, Portland operates at an Ebitda margin of 21% and a net profit margin of 14.5%. Based on these numbers, the price-earnings multiple also looks reasonably cheap at 8.2 times. Given the state of the markets currently, it’s not surprising that Infosys has managed a good deal, especially for a company that operates on healthy double-digit margins. It’s a deal that works out to be earnings accretive.
Having said that, there’s nothing much for investors to get excited about. The acquisition won’t even consume 1% of Infosys cash balance of $3.5 billion (end-September cash balance at current exchange rates). And similarly, Portland’s revenue will be merely a drop in the ocean when compared to Infosys’ large size. Now that the company has been underperforming in the past many quarters, investors will clearly be looking forward to a substantive acquisition, which will drive the company back to industry-leading growth.
Still, the Portland acquisition is a move in the right direction and it’s heartening to note that Infosys is looking for companies to acquire and plug the gaps it has in its service lines. Portland will help the company increase its presence in the Australian region, as it counts several ASX 200 companies (an index of top Australian companies) as its clients. According to the Prabhudas Lilladher report, Portland has assisted around 50 of the ASX 200 clients as well as some other large customers in Australia and New Zealand.
On a year-to-date basis, Infosys shares have performed in line with the markets, falling by over 20%, even while shares of its top competitor, Tata Consultancy Services Ltd, have remained flat. This is because of the latter’s superior growth parameters in recent quarters. Some analysts believe Infosys’s financial underperformance will soon end and its shares will do better vis-à-vis peers. Investors, however, are yet to be convinced. Even in the past one month, the company’s shares have underperformed.
Source:http://www.livemint.com/2011/12/26223052/A-good-deal-for-Infosys.html
