Patni Computer Watershed along expected lines :Emkay

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Patni Computer

Watershed along expected lines

NOT RATED

CMP: Rs322                                        Target Price: N.A.

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n     June’11 rev fell short of est with a 3.4% QoQ decline to ~US$ 184 mn. Mgns declined ~ 640 bps QoQ to 11.4% driven by lower top line, wage increments and higher SG&A expenses

n     Metrics performance poor with the only bright spot being growth within top 5/10 clients at ~2.6/2.3% with performance weak across verticals  and outside top 10 clients (-8.2% QoQ)

n     Cut our ‘lower than street’ CY11/12E EPS by ~18%/12% to Rs 25/30.4 as we incorporate lower op performance, higher amortization and taxes. Expect sharper cuts from street 

n     Valuations at ~10x CY12E EPS are modest ( after a 30%+ fall in past 3M’s), upsides hinged on potential delisting and  op improvement( more likely a late CY12/early CY13 case)