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UBS Investment Research
Patni Computer Systems
Q410 results above UBS estimates; maintain Buy
Revenue in line; net income beat estimates on higher other income
Patni reported 2.9% QoQ growth in revenue to Rs8.2bn, 2.0% higher than our
estimate and in line with consensus. While EBITDA margin was at 16.0%, lower
than our estimate, net profit came in at Rs1.76bn (up 37.8% QoQ), 34% above our
estimate. Net income was boosted by higher-than-expected forex gain and a tax
write-back.
Influx of new clients and deal wins imply healthy growth rate
The influx of 19 new clients during the last quarter coupled with recent
deal/partnership wins suggests accelerated top-line growth for the company in the
medium term. We also believe that the induction of new management will lead to
further improvement in the growth rate.
Successful integration with iGate remains the key catalyst for 2011
We believe the successful merger of Patni-iGate will be the catalyst in the near
term. Till the integration is completed, the combined entity will form a joint “goto-
market” strategy to exploit the complementary skills—iGate’s banking and
media practices and Patni’s insurance, manufacturing and telecom experience—to
help the consolidated entity grow faster.
Valuation: maintain Buy rating, price target of Rs600
Patni is trading at 10.8x 2011E PE, a discount of 49% to Infosys. We believe this
discount should narrow once clarity emerges on the iGate deal dynamic and
integration roadmap. We derive our price target of Rs600 from a DCF-based
methodology and explicitly forecast long-term valuation drivers using UBS’s
VCAM tool. We assume a WACC of 11.7% and a terminal growth rate of 3%.
Patni Computer Systems
Incorporated in 1978, Patni Computer Systems (Patni) is one of the leading
India-based providers of IT services. It has over 14,000 employees across 29
centres across the world. Patni offers services in application development and
maintenance, enterprise solutions and other IT-enabled services. It derives most
of its revenue from the US and the rest from EMEA and Asia. Its main verticals
are insurance, manufacturing and retail, and product engineering.
Statement of Risk
A sharp decline in IT Services spending could result in downward revision of
our earnings estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Patni Computer Systems
Q410 results above UBS estimates; maintain Buy
Revenue in line; net income beat estimates on higher other income
Patni reported 2.9% QoQ growth in revenue to Rs8.2bn, 2.0% higher than our
estimate and in line with consensus. While EBITDA margin was at 16.0%, lower
than our estimate, net profit came in at Rs1.76bn (up 37.8% QoQ), 34% above our
estimate. Net income was boosted by higher-than-expected forex gain and a tax
write-back.
Influx of new clients and deal wins imply healthy growth rate
The influx of 19 new clients during the last quarter coupled with recent
deal/partnership wins suggests accelerated top-line growth for the company in the
medium term. We also believe that the induction of new management will lead to
further improvement in the growth rate.
Successful integration with iGate remains the key catalyst for 2011
We believe the successful merger of Patni-iGate will be the catalyst in the near
term. Till the integration is completed, the combined entity will form a joint “goto-
market” strategy to exploit the complementary skills—iGate’s banking and
media practices and Patni’s insurance, manufacturing and telecom experience—to
help the consolidated entity grow faster.
Valuation: maintain Buy rating, price target of Rs600
Patni is trading at 10.8x 2011E PE, a discount of 49% to Infosys. We believe this
discount should narrow once clarity emerges on the iGate deal dynamic and
integration roadmap. We derive our price target of Rs600 from a DCF-based
methodology and explicitly forecast long-term valuation drivers using UBS’s
VCAM tool. We assume a WACC of 11.7% and a terminal growth rate of 3%.
Patni Computer Systems
Incorporated in 1978, Patni Computer Systems (Patni) is one of the leading
India-based providers of IT services. It has over 14,000 employees across 29
centres across the world. Patni offers services in application development and
maintenance, enterprise solutions and other IT-enabled services. It derives most
of its revenue from the US and the rest from EMEA and Asia. Its main verticals
are insurance, manufacturing and retail, and product engineering.
Statement of Risk
A sharp decline in IT Services spending could result in downward revision of
our earnings estimates.
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