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T r i g g e r s a r e m i s s i n g …
Patni reported numbers, which were below our estimates. Revenue
declined 3.4% sequentially led in part by volume decline (1.1% QoQ),
merger & acquisition related accounting (2.4% impact) and migration of
one of Patni’s key and common client to iGate. We believe revenue
growth and operational performance, relative to peers, could likely
remain feeble during the integration process and a potential delisting
offer remains the sole trigger for stock price rally. However, note that
buyback entails additional ~$180-200 million and is a few quarters away
as per management commentary. Consequently, we are lowering our
estimates and target price sharply and reiterating a shift to TCS and
Infosys, which remain our top picks.
ƒ Revenue, EPS way below estimates, impacted by restructuring cost
Reported revenues declined to | 821.4 crore (I-direct estimate: |
839.2 crore) led by 1.1% decline in volumes. EBITDA margins came
in weak at 4% vs. our 17.3% estimate as reported EBITDA margins
include severance cost paid to Patni employees. Note this quarter,
Patni added subcontractors to the employee base of the firm. Thus,
the total employee base stood at 18,372 in Q2CY11 from the revised
18,562 number in Q1CY11.
ƒ Operating metric highlights
Media entertainment was weak and declined 5% QoQ while public
sector had decent growth of 7% QoQ and 30% YoY. Insurance,
though weak, grew 1% QoQ and 13% YoY along with healthcare.
Manufacturing showed a modest growth of 6% QoQ and 23% YoY.
Patni added three new clients this quarter out of which two were
from the manufacturing vertical.
V a l u a t i o n
We are adjusting our CY11 EPS estimate to | 26.4 vs. | 41.5 earlier due to
the lower revenue and earnings in Q2CY11. We continue to believe that
Patni-iGate synergies are few quarters away during which the company
could likely report tepid revenue and earnings growth. Consequently, we
are lowering our estimates, price target to | 330 (| 440) earlier and
reiterating a shift to TCS and Infosys, which remain our top picks
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
T r i g g e r s a r e m i s s i n g …
Patni reported numbers, which were below our estimates. Revenue
declined 3.4% sequentially led in part by volume decline (1.1% QoQ),
merger & acquisition related accounting (2.4% impact) and migration of
one of Patni’s key and common client to iGate. We believe revenue
growth and operational performance, relative to peers, could likely
remain feeble during the integration process and a potential delisting
offer remains the sole trigger for stock price rally. However, note that
buyback entails additional ~$180-200 million and is a few quarters away
as per management commentary. Consequently, we are lowering our
estimates and target price sharply and reiterating a shift to TCS and
Infosys, which remain our top picks.
ƒ Revenue, EPS way below estimates, impacted by restructuring cost
Reported revenues declined to | 821.4 crore (I-direct estimate: |
839.2 crore) led by 1.1% decline in volumes. EBITDA margins came
in weak at 4% vs. our 17.3% estimate as reported EBITDA margins
include severance cost paid to Patni employees. Note this quarter,
Patni added subcontractors to the employee base of the firm. Thus,
the total employee base stood at 18,372 in Q2CY11 from the revised
18,562 number in Q1CY11.
ƒ Operating metric highlights
Media entertainment was weak and declined 5% QoQ while public
sector had decent growth of 7% QoQ and 30% YoY. Insurance,
though weak, grew 1% QoQ and 13% YoY along with healthcare.
Manufacturing showed a modest growth of 6% QoQ and 23% YoY.
Patni added three new clients this quarter out of which two were
from the manufacturing vertical.
V a l u a t i o n
We are adjusting our CY11 EPS estimate to | 26.4 vs. | 41.5 earlier due to
the lower revenue and earnings in Q2CY11. We continue to believe that
Patni-iGate synergies are few quarters away during which the company
could likely report tepid revenue and earnings growth. Consequently, we
are lowering our estimates, price target to | 330 (| 440) earlier and
reiterating a shift to TCS and Infosys, which remain our top picks
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