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Patni Computers- Exit at open offer…
Patni Computers reported its Q4CY10 numbers that were in line with
our estimates. Net income was | 57.4 crore higher than our estimate
aided by tax write-backs ($7.5 million in Q4CY10) and other income that
was | 28 crore more relative to our estimate. Patni signed two deals
with total contract value (TCV) worth $30 million each. That said, given
limited visibility on transition & integration, we believe investors should
take advantage of the open offer and tender their shares.
τ Tender shares to reduce acquisition cost
Our analysis suggests that depending on the acceptance ratio,
tendering shares could reduce the acquisition price (yesterday’s
close of | 462) by a minimum of | 51. The illustration below
highlights that post the open offer exit the holding price would
reduce by | 51 to | 411 assuming 100% acceptance ratio. The
acceptance ratio is calculated by dividing open offer shares by
public shareholding (here 2.7/4.9 crore shares). We believe investors
could potentially use this window to offset the acquisition cost.
Valuation
We have modestly adjusted our revenues and expect them to grow at
11.4% CAGR during CY10-CY12E but maintain our EPS estimate. We have
valued Patni at | 465, i.e. at 10.9x (earlier 12.1x) our CY12E EPS of | 42.7
and rate the stock as ADD.
τ Revenue, EPS in line
Patni reported revenues of | 820.9 crore (I-direct estimate: | 822.3
crore) led by 2.4% volume growth. At | 174.9 crore, net profit was
also ahead of our | 117.5 crore estimate helped in part by higher
other income and tax write-back, which contributed | 4.6 (on pre-tax
basis) to the EPS. Noticeably, Patni hired 1,086 net heads in Q4CY10
and 3,316 heads in CY10. LTM attrition continues to remain at
elevated levels of 25.2% vs. 13.7%, which could lead to higher wage
inflation in CY11.
τ Telecom hurts; insurance, manufacturing help but not much
The insurance and product engineering verticals grew 4.7% and
1.2% QoQ while manufacturing grew 5.5% QoQ. Financial services
and communication continue to be weak with 2.4% QoQ growth
and 10.5% QoQ decline. Though the management suggested that
system integration type of work led to a tepid performance, telecom
demand continues to taper.
Valuation
We have modestly adjusted our revenues and expect them to grow at
11.4% CAGR during CY10-CY12E but maintain our EPS estimate. We have
valued Patni at | 465, i.e. at 10.9x (earlier 12.1x) our CY12E EPS of | 42.7
and rate the stock as ADD.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Patni Computers- Exit at open offer…
Patni Computers reported its Q4CY10 numbers that were in line with
our estimates. Net income was | 57.4 crore higher than our estimate
aided by tax write-backs ($7.5 million in Q4CY10) and other income that
was | 28 crore more relative to our estimate. Patni signed two deals
with total contract value (TCV) worth $30 million each. That said, given
limited visibility on transition & integration, we believe investors should
take advantage of the open offer and tender their shares.
τ Tender shares to reduce acquisition cost
Our analysis suggests that depending on the acceptance ratio,
tendering shares could reduce the acquisition price (yesterday’s
close of | 462) by a minimum of | 51. The illustration below
highlights that post the open offer exit the holding price would
reduce by | 51 to | 411 assuming 100% acceptance ratio. The
acceptance ratio is calculated by dividing open offer shares by
public shareholding (here 2.7/4.9 crore shares). We believe investors
could potentially use this window to offset the acquisition cost.
Valuation
We have modestly adjusted our revenues and expect them to grow at
11.4% CAGR during CY10-CY12E but maintain our EPS estimate. We have
valued Patni at | 465, i.e. at 10.9x (earlier 12.1x) our CY12E EPS of | 42.7
and rate the stock as ADD.
τ Revenue, EPS in line
Patni reported revenues of | 820.9 crore (I-direct estimate: | 822.3
crore) led by 2.4% volume growth. At | 174.9 crore, net profit was
also ahead of our | 117.5 crore estimate helped in part by higher
other income and tax write-back, which contributed | 4.6 (on pre-tax
basis) to the EPS. Noticeably, Patni hired 1,086 net heads in Q4CY10
and 3,316 heads in CY10. LTM attrition continues to remain at
elevated levels of 25.2% vs. 13.7%, which could lead to higher wage
inflation in CY11.
τ Telecom hurts; insurance, manufacturing help but not much
The insurance and product engineering verticals grew 4.7% and
1.2% QoQ while manufacturing grew 5.5% QoQ. Financial services
and communication continue to be weak with 2.4% QoQ growth
and 10.5% QoQ decline. Though the management suggested that
system integration type of work led to a tepid performance, telecom
demand continues to taper.
Valuation
We have modestly adjusted our revenues and expect them to grow at
11.4% CAGR during CY10-CY12E but maintain our EPS estimate. We have
valued Patni at | 465, i.e. at 10.9x (earlier 12.1x) our CY12E EPS of | 42.7
and rate the stock as ADD.
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