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UBS Investment Research
Patni Computer Systems
Muted revenue momentum to limit upside
„ Event: iGate integration has begun, but synergies at least a year away
iGate now owns an 82.4% stake in Patni after the completion of the open offer in
April 2011. The planning process for the integration of iGate and Patni started in
January 2011, and the sales force is currently being trained to effectively cross-sell
services between iGate and Patni. Benefits from the integration, however, are
unlikely to have meaningful impact over the next few quarters.
„ Impact: revenue momentum unlikely to see meaningful pick-up
Over the past few quarters, hopes of improvement in revenue momentum for Patni
have begun to fade. Revenue has struggled to meet the company’s intended 3-4%
quarterly run rate. Q211 revenue is likely to be muted, and the deals won over the
past four to six quarters are yet to make a meaningful impact on revenue. We
expect revenue momentum to be slower than our earlier expectations of a pick-up
in 2011.
„ Action: lowering earnings estimates to reflect slower-than-expected growth
We lower our 2011/12/13 EPS estimates by 8.8%/10.7%/17.8% to factor in the
slower revenue growth and related margin impact. We expect the lower free float
and the lack of clarity on delisting or a sell-down in stake to 75% (for regulatory
compliance) to continue to weigh heavily on the stock, limiting upside.
„ Valuation: lower PT, maintain Neutral
We maintain our Neutral rating given the reasonable valuations at 9.2/8.9x
2011E/12E EPS, a 12% discount to the 5-year average, and a 25-30% discount to
mid-cap peers. We lower our DCF-based price target from Rs475 to Rs380, with
target PE of 9.8x 2012E.
Q 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.
Q 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
Muted revenue momentum to limit upside
„ Event: iGate integration has begun, but synergies at least a year away
iGate now owns an 82.4% stake in Patni after the completion of the open offer in
April 2011. The planning process for the integration of iGate and Patni started in
January 2011, and the sales force is currently being trained to effectively cross-sell
services between iGate and Patni. Benefits from the integration, however, are
unlikely to have meaningful impact over the next few quarters.
„ Impact: revenue momentum unlikely to see meaningful pick-up
Over the past few quarters, hopes of improvement in revenue momentum for Patni
have begun to fade. Revenue has struggled to meet the company’s intended 3-4%
quarterly run rate. Q211 revenue is likely to be muted, and the deals won over the
past four to six quarters are yet to make a meaningful impact on revenue. We
expect revenue momentum to be slower than our earlier expectations of a pick-up
in 2011.
„ Action: lowering earnings estimates to reflect slower-than-expected growth
We lower our 2011/12/13 EPS estimates by 8.8%/10.7%/17.8% to factor in the
slower revenue growth and related margin impact. We expect the lower free float
and the lack of clarity on delisting or a sell-down in stake to 75% (for regulatory
compliance) to continue to weigh heavily on the stock, limiting upside.
„ Valuation: lower PT, maintain Neutral
We maintain our Neutral rating given the reasonable valuations at 9.2/8.9x
2011E/12E EPS, a 12% discount to the 5-year average, and a 25-30% discount to
mid-cap peers. We lower our DCF-based price target from Rs475 to Rs380, with
target PE of 9.8x 2012E.
Q 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.
Q Statement of Risk
A sharp decline in IT Services spending could result in downward revision of
our earnings estimates.
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