>INFOSYS: Inorganic Booster – Acquired Lodestone

Infosys announced acquisition of Lodestone, a Switzerland based management consulting company. The company has paid an enterprise value of CHF330m ($349m) in cash for the acquisition. We see the acquisition as a step towards Infosys 3.0. This will enhance consulting and system integration practise of Infosys. The transaction is expected to close by the end of October, 2012.

􀂄 About Lodestone – Strength in C&SI: Lodestone, headquartered in Zurich (Switzerland), current has ~850 employees, including 750 SAP consultants in the company. Lodestone Management Consultants is founded on August 1, 2005, by Ronald Hafner, Jürgen Bauer and Peter Ödman. All three founders have broad consulting and industry experience. It has more than 200 clients across industries including Manufacturing, automotive, life sciences, chemicals, and consumer goods sector. Post acq uisition Infosys would have Consulting and
Package Implementation revenue of $1bn+.

􀂄 Lodestone reported steady growth: Lodestone had reported revenue of
CHF207mn for 2011, growing from CHF181mn in 2010. Lodestone has presence in 17 countries across five continents, with the headcount growing steadily since 2005. It has in its kitty marquee clients like Allianz, BMW, Kimberly Clark, Sandoz SHAPE, Warner Chilcott, Munich Re, AGCO System and Roche. The acquisition will enhance the presence of Infosys in Europe and emerging markets like Latin America and Asia Pacific. Revenue for the Lodstone has grown at CAGR of 45% (2005‐11), whereas employee strength has grown steadily by 57% (2005‐12).

􀂄 Valuation & Recommendation – Much needed inorganic booster, Reiterate BUY: Infosys has been looking for acquisition from a long time to strengthen its presence in Consulting and Package Implementation domain. After loosing-out on Axon acquisition, Infosys organically grew its C&SI revenue to $525m (5% CQGR over last 20 quarters). We see this acquisition as much needed inorganic booster for the company. We reiterate “BUY” rating with a target price of Rs2,850.

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