Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys Ltd. (INFY.BO) Rs2,353.05
Equity Research
Acquisition of healthcare business of TRI? Inline with strategic focus
News
As per Business Standard (Sep 15), Infosys is close to acquiring the health care
business of Thomson Reuters (TRI, Neutral, US$29.31) in a US$700-750mn
deal. Reports have cited INFY as the front-runner for the deal and noted that an
announcement is likely shortly. Earlier, TRI had announced (June 6) its
intention to divest the healthcare business and expected it to close before the
end of 2011. This division provides data, analytics and benchmarking solutions
and services to customers. TRI’s healthcare business had revenues of about
US$450mn and operating margin close to TRI’s margin of 19.3% in 2010.
Analysis
(1) In our recent meetings, INFY’s mgmt reiterated their three pronged
acquisition strategy – a) verticals where they don’t have exposure, b)
geographies seen as future growth drivers and c) emerging technology
capabilities. Healthcare, along with public services, has been a stated focus
for INFY. (2) Global pharma cos. are seeking to reduce costs, with US$80bn
of drugs going off patent in the next 3 years. IT should be a key driver to
help them reduce costs and improve efficiencies. Further, initiatives like
ICD-10 conversion in US should also drive tech spending in the HC vertical
over the next few years (3) Thus in our view, an acquisition in the HC
vertical would be a strategic fit as it has been underpenetrated by Indian IT,
esp. INFY, which has the lowest exposure in the top four (3.5% of FY11
revenues). CTSH is the leader with a 25.6% share in 2010 and a 32% CAGR
in the last 3-years vs. INFY’s CAGR of 11.7% (4) With US$450mn revenues
in 2010, the cited deal value implies a 2010 P/S of 1.6x-1.7x. Recent few
acquisitions in the IT services / software area have been in the range of
1.5x-2.5x P/S (Axon at 2.1x). (5) INFY currently has US$3.8bn cash as of
Jun ’11 and any such deal is likely to be funded through the same.
Implications
Assuming this transaction goes through, at 20% current EBIT margin for
the Thomson business, the deal could add about 5%/4% to INFY’s FY13E
revenue/EBIT (Exhibit 2). We maintain our Buy and TP on INFY.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Infosys Ltd. (INFY.BO) Rs2,353.05
Equity Research
Acquisition of healthcare business of TRI? Inline with strategic focus
News
As per Business Standard (Sep 15), Infosys is close to acquiring the health care
business of Thomson Reuters (TRI, Neutral, US$29.31) in a US$700-750mn
deal. Reports have cited INFY as the front-runner for the deal and noted that an
announcement is likely shortly. Earlier, TRI had announced (June 6) its
intention to divest the healthcare business and expected it to close before the
end of 2011. This division provides data, analytics and benchmarking solutions
and services to customers. TRI’s healthcare business had revenues of about
US$450mn and operating margin close to TRI’s margin of 19.3% in 2010.
Analysis
(1) In our recent meetings, INFY’s mgmt reiterated their three pronged
acquisition strategy – a) verticals where they don’t have exposure, b)
geographies seen as future growth drivers and c) emerging technology
capabilities. Healthcare, along with public services, has been a stated focus
for INFY. (2) Global pharma cos. are seeking to reduce costs, with US$80bn
of drugs going off patent in the next 3 years. IT should be a key driver to
help them reduce costs and improve efficiencies. Further, initiatives like
ICD-10 conversion in US should also drive tech spending in the HC vertical
over the next few years (3) Thus in our view, an acquisition in the HC
vertical would be a strategic fit as it has been underpenetrated by Indian IT,
esp. INFY, which has the lowest exposure in the top four (3.5% of FY11
revenues). CTSH is the leader with a 25.6% share in 2010 and a 32% CAGR
in the last 3-years vs. INFY’s CAGR of 11.7% (4) With US$450mn revenues
in 2010, the cited deal value implies a 2010 P/S of 1.6x-1.7x. Recent few
acquisitions in the IT services / software area have been in the range of
1.5x-2.5x P/S (Axon at 2.1x). (5) INFY currently has US$3.8bn cash as of
Jun ’11 and any such deal is likely to be funded through the same.
Implications
Assuming this transaction goes through, at 20% current EBIT margin for
the Thomson business, the deal could add about 5%/4% to INFY’s FY13E
revenue/EBIT (Exhibit 2). We maintain our Buy and TP on INFY.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
No comments:
Post a Comment