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Weak revenue outlook in the
price; downside protected by
delisting trigger
Action: Weak revenue outlook in the price; upgrade to Neutral
Patni has corrected by 39% (vs 19% correction for the Nifty) YTD and is
now trading at 10x FY12F EPS. Post this correction, we see limited
downside given: 1) likely sequential margin and EPS improvement for the
next few quarters primarily on the back of G&A savings; 2) a cash balance
of INR130 per share (~45% of market cap); and 3) Igate’s expressed
preference for a delisting, which could result in shares being acquired at a
premium to current prices. Upgrade Patni to Neutral.
Not a Buy yet, as revenue and governance concerns remain
Patni’s revenue growth will be sluggish, in our view, (we model 6.6%
CAGR over FY10-12F) as margin improvement seems to be the primary
focus of management. Also, we still have concerns on allocation of costs
and revenues to Patni under a common Igate-Patni front-end.
Catalyst: Change in delisting plans, improvement in revenue growth
An Igate decision to cut its stake instead of delisting could lead to
valuation multiple de-rating. Any sign of Patni breaking out from the sub-
4% sequential revenue growth pattern could lead to a re-rating in the
stock.
Valuation: Raise TP to INR300 based on 10x 1-yr forward earnings
Our diluted EPS estimates are higher by 6%/3% to INR25.4/28.3 in
FY11/12F on 1) rupee depreciation; and 2) higher G&A savings, despite
cut in FY13F revenue estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Weak revenue outlook in the
price; downside protected by
delisting trigger
Action: Weak revenue outlook in the price; upgrade to Neutral
Patni has corrected by 39% (vs 19% correction for the Nifty) YTD and is
now trading at 10x FY12F EPS. Post this correction, we see limited
downside given: 1) likely sequential margin and EPS improvement for the
next few quarters primarily on the back of G&A savings; 2) a cash balance
of INR130 per share (~45% of market cap); and 3) Igate’s expressed
preference for a delisting, which could result in shares being acquired at a
premium to current prices. Upgrade Patni to Neutral.
Not a Buy yet, as revenue and governance concerns remain
Patni’s revenue growth will be sluggish, in our view, (we model 6.6%
CAGR over FY10-12F) as margin improvement seems to be the primary
focus of management. Also, we still have concerns on allocation of costs
and revenues to Patni under a common Igate-Patni front-end.
Catalyst: Change in delisting plans, improvement in revenue growth
An Igate decision to cut its stake instead of delisting could lead to
valuation multiple de-rating. Any sign of Patni breaking out from the sub-
4% sequential revenue growth pattern could lead to a re-rating in the
stock.
Valuation: Raise TP to INR300 based on 10x 1-yr forward earnings
Our diluted EPS estimates are higher by 6%/3% to INR25.4/28.3 in
FY11/12F on 1) rupee depreciation; and 2) higher G&A savings, despite
cut in FY13F revenue estimates.
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