Speaking on the Infosys decision to acquire an automation tech company Panaya Inc, Vibhor Singhal IT analyst at Phillip Capital said it as a small but positive step and a strategic deal for Infosys.
Taking forward their strategy of 'new & re-new', the tech major Infosys is set to acquire automation tech provider, Panaya Inc for USD 200 million. According to some reports suggest, Panaya has an estimated annual revenue of USD 10 million and the transaction will close by March 31, 2015.
However, one must not expect the acquisition to have a huge financial impact on Infosys topline and bottomline numbers because it would more help them improve their delivery capabilities and cloud domain, said Singhal.
Infosys was already sitting on a huge cash pile and was looking at inorganic route to grow their delivery capabilities, he added.
Below is the transcript of Vibhor Singhal's interview with Anuj Singhal and Reema Tendulkar on CNBC-TV18.
Anuj: My co-anchor and IT expert tells me that maybe this acquisition looks expensive on face of it. What is your call?
A: Basically this company Panaya that the company has acquired is more of strategic acquisition that the company has made. So, being in the domain of automation, this is more of delivery capabilities that the company is looking to acquire. So, small but a positive step in the right direction for the company.
Reema: Do you have any estimates of what the revenue as well as the profitability of Panaya is?
A: Unfortunately we haven't got any details. The company has not announced any details and being a privately held company, those numbers are also not available but I am not expecting much financial impact from this acquisition to the numbers of Infosys.
It is more of a delivery capabilities acquisition that the company has taken, so to help them basically improve their delivery capabilities and the Cloud domain because Panaya if you see has got more than 850 clients and they are a major provider of software and service solutions. So, that is where Infosys is trying to gain footholds through this acquisition.
Q: There are certain online reports which have estimated it at USD 10 million. It is purely online reports as of now. If it is that, then would you say that the acquisition is on the higher side at 20X and then it is also likely to be EPS dilutive?
A: Not so sure. In any case the company was sitting on a huge cash pile and the company has repeatedly mentioned that they would be looking for the inorganic route to grow their delivery capabilities.
So, again this acquisition should not be perceived from the perspective of how much it adds to the top line or the bottom line but what it adds to the entire arsenal of the company in terms of basically taking on the new age of digital revolution.
Anuj: With Sikka firmly at helm now, do you sense that there would be more shopping over the next few quarters and would this be a strategy for Infosys given the kind of cash that they have?
A: Definitely, that is probably the way that the company is going to take and Sikkaa has been quite vocal about it that he is not shy in acquiring these companies. They will not be acquiring companies to add sales or profitability. Infosys has those clients with itself and what it would be looking at is to probably add some more in the delivery capabilities or in the consulting domain or some kind of companies which give them an edge in a domain which they are not present currently.
Anuj: Suppose over the next few quarters, they continue to make this acquisition which look expensive on face of it and could even be EPS dilutive. In that case what would be the market reaction? Today we have seen a bit of down tick - Would the market look at things positively from the medium- term point of view or do you think this would be a bit of an over hand.
A: Depends on the size. If you see the acquisition today, it is a very small acquisition in the price value of around US 200 million. So, that is why I don't think there is much of an impact but yes if the company continue to make those acquisitions which are expensive in nature and if they are significantly EPS dilutive, then of course the market will react accordingly that as to how much of it is it adding to the delivery capabilities and is it worth acquiring such a company in those terms.
Disclosure: None. We as a company do not hold the stock in our holdings.
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