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Patni Computers
Update on conference call with iGATE
iGATE has formulated a strategy to help Patni shore up its shortand
long-term margin via: i) broadening employee pyramid (since
Patni’s average employee experience is higher than industry); ii)
increasing Patni’s fixed price projects (FPPs) by using iGATE’s
estimation model; iii) partitioning employees across projects, thus
improving utilization; iv) adding higher value-add services
(offering iTops to Patni’s clients); and v) reducing recruitment
cost and attrition on the back of improved brand image.
The way forward. Phaneesh Murthy stated that the two companies
will be merged in 18-24 months time. Till the merger finalizes, the
marketing team (400-500 people) of both companies will be
combined to form a “joint-go-to-market” strategy. Patni’s cash
(Rs109/share) would be used for internal capex, working capital
and buyout of IPs, not for debt service of loan taken by iGATE.
Outlook. The deal win ratio for Patni would go up. Cross-selling
each other’s offerings and domain expertise would aid better
traction. An independent board is to be appointed for Patni and
iGATE to differentiate work distribution between the two
companies; this, we believe, is a positive step towards better
corporate governance.
Valuation. At our target price, Patni trades at 11x Sep ’11e (`425)
and `75 (valuing cash above the average peer holding). Integration
of both companies will be the main challenge (as it would take at
least a quarter to materialize).
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