India's Infosys shares rally after Axon Group acquisition

By Sumeet Chatterjee

BANGALORE (Reuters) - Shares in Infosys Technologies (INFY.BO) rose more than 2 percent in a weak Mumbai market on Tuesday after India's second-largest software services exporter agreed to buy a British technology firm.

Analysts said the acquisition would give the Bangalore-based company access to new clients and help boost its presence in the fast-growing European market at a time when India's services exporters look for growth beyond a slowing U.S. market.

"The deal looks very good from a long-term perspective," said Harit Shah, a sector analyst with Angel Broking in Mumbai. "It will turbo-charge their growth in Europe and give them access to a very good set of clients."

At 6:52 a.m. British time, shares in Infosys were up 1.3 percent at 1,725 rupees, after having risen as much as 2.2 percent, in the Mumbai market that was down 0.7 percent.

Infosys said on Monday, after the market had closed, it had agreed to buy consultancy Axon Group AXO.L for 407 million pounds.

The all cash deal values Axon about two times its revenue in 2007, which was 204.5 million pounds, and 20 times its net profit of 20.2 million pounds.

"The deal is certainly not cheap, but it's not highly expensive as well given the kind of synergies that Infosys will get," Shah said. "This will give much better returns on the cash they were sitting on for a long time."

Infosys has been criticised for holding back on acquisitions despite sitting on a cash chest of about $2 billion. Its smaller rival Wipro (WIPR.BO) has used its cash reserves to seal a string of acquisitions in the past two years.