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Infosy's buy, branded generics & more… - Views on News from Equitymaster
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  • Aug 26, 2008

    Infosy's buy, branded generics & more…

    Infosys acquires Axon
    It's finally happened! After ducking to investor queries on the usage of its large cash balance (US$ 1.7 bn at the end of March 2008) other than paying out decent amount of dividends year after year, Infosys yesterday announced the acquisition of UK based Axon Group Plc in an all-cash deal of US$ 750 m. This is the largest ever acquisition by an Indian software company and the second by Infosys after its US$ 23 m acquisition of the Australia based Expert Information Services way back in 2003.

    The rationale Infosys' management has assigned for this deal is to get a stronghold in the IT consulting business as also increase its share of business from the European markets. Axon is a leading SAP (package software) consulting company servicing clients in 30 countries, with around 55% of revenues coming from Europe alone. Considering that Axon earned revenues of US$ 375 m in 2007, the acquisition has been valued at 2x sales. Axon's 2007 operating and net margins stood at 15% and 10% respectively, meaning that post consolidation, it would lead to some margin dilution for Infosys.

  • Also read - Consolidation in IT

    Oil prices rise
    The movement in crude oil prices continues to be volatile. While oil has fallen by more than US$ 30 a barrel since the high of US$ 147 it had reached on July 11, geopolitical tensions and possibility of supply disruptions are proving to be blemishes against a backdrop of weakening crude prices. For instance, as per reports on Bloomberg, oil rose to US$ 115 a barrel after Russia voted to recognise the independence of two breakaway Georgian regions, raising fears of new tensions in the area.

    Despite these blips, slowdown in the global economy especially the US (the largest consumer of oil) and rising inflation has tempered the demand for crude oil and has been instrumental in cooling off prices. For how long this state of affairs can be sustained remains to be seen.

    Branded generics catching on
    With many blockbuster drugs going off patent, generic companies the world over are making a beeline for launching generic versions of these patented drugs and reap in profits. However, given that many players are vying for a slice of the pie, the competition has become intense and price erosion brutal. What makes it all the more tough is that the generic drugs in the regulated markets of the US and Europe are not typically branded as a result of which margins enjoyed by generic companies are wafer thin. As a measure to counter this, Indian generic companies such as Ranbaxy, Dr. Reddy's, Glenmark and the like are focusing on 'branded generics', which enjoy higher revenues and margins. It must be noted that these companies were already selling branded generics in the semi and less regulated markets in Asia, Russia, CIS and Africa and garnering substantial profits. The focus is now shifting towards launching such branded generics in the regulated markets, especially the US.

    Another trend catching pace is the emphasis on niche products which are difficult to make and thereby attract fewer players, thereby magnifying the revenue potential. Since plain vanilla generic products have now become highly commoditised, having a balanced product portfolio with a mix of both plain vanilla generics and niche generics has become crucial to drive growth in revenues. Dermatology, biosimilars, injectables and sterile products and ophthalmology are some of the niche therapeutic areas, which have evinced considerable interest.

  • Also read: Pharma: Its all about 'niche'



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    Aug 17, 2017 03:37 PM