Visit http://indiaer.blogspot.com/ for complete details 
Buy the management…
Patni Computers Ltd is one of the oldest and the sixth-largest IT
solution providers in India. The company provides IT services, mainly
focused on banking, financial services, manufacturing and telecom
verticals. Its service gamut includes application development and
maintenance, enterprise solutions, embedded technology service and
product engineering services. More than 78% of the company’s
revenues come from US and the rest from EMEA and APAC regions.
New management and approach
The senior management has been restructured over the last 1.5
years to gear up the growth level, which was facing headwinds due
to lack of management focus, attrition and low growth from top
clients. The new management is focusing on micro verticals and
trying to tap emerging markets like APAC. This will be beneficial for
the company in the longer term as its revenue concentration in the
US geography is high, which needs to be addressed. Further, with
proven cost management during the downturn, the company has
proved its ability to sustain margins.
CHCS acquisition could yield incremental revenues
Patni acquired CHCS in June 2010 for a consideration of US$6
million. This will enable it to serve as third-party administrator for its
insurance clients. Also, it has acquired a managed service platform
from one of its manufacturing clients at US$13 million. This will give
it a stable revenue stream from it as well as enable it to market it to
other clients in the same domain.
Demand landscape looks bright
The management has indicated that it is witnessing broad-based
growth with a healthy deal pipeline. Out of this, two or three deals
have a total contract value (TCV) of $30-50 million each. Patni
intends to hire 1,500 net employees in H2CY10 to map into the
demand. Also, it saw attrition abating in Q3CY10 with higher growth
likely from Europe despite challenging macro conditions.
Valuation
Since discretionary expenses are coming in for Indian IT companies and
the managements’ optimistic commentary, we expect 12% revenue
CAGR over CY09-CY12E. The stock is currently trading at cheap
valuations of 11.5x CY11E EPS and 11x CY12E EPS of Rs 40.6 and Rs
42.7, respectively. Thus, we recommend the stock as Pick of the Week.
We have valued the stock at 12x CY12E EPS with a target price of Rs 516
with 10% upside from current levels.
No comments:
Post a Comment