Infosys Axon Deal- The times they are a changing

I had in my earlier post on Infosys commented on the investment policy that Infosys had laid out in its balance sheet by laying out a hurdle rate of twice the average cost of capital.

I had also commented on Infosys either needs to lower its hurdle rate to the cost of capital else return capital to shareholders. Clearly the times they are a changing :-).

I think the Axon deal is a positive for Infosys as opposed to earning interest on ICICI fixed deposits.

This will enable them to build a strong foothold in the SAP domain and move up the value chain. The deal is valued at 20 times current year earnings. Infosys will clearly be able to up the margins on Axon by increasing the offshoring content. I personally have dealt with Infosys as a organisation and am confident in the management ability to assimilate this deal and handle a smooth transition.

To me this is a flavour of things to come for the big 3 in the IT sector. Though TCS and Wipro have historically been relatively more aggressive in inorganic growth, I see Infosys utilising the spare cash on it balance sheet more aggressively.