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Patni Computer Systems (PTNI.BO)
Quarter In-line with Expectations
In-line quarter — Revenues at $179m were up ~7% qoq (CIRA ~6% qoq) while
margins came in at 18.9% (CIRA: 19.8%), a drop of ~125bps qoq. While revenue
growth is encouraging, it comes on the back of a very weak last quarter, where
revenues declined ~3% qoq. Profits at Rs1.3b were ahead, due to forex gain of
more than Rs200m. Volume growth was ~6.2%, while pricing was stable.
Q4 guidance muted — Revenue guidance for Q4 is $180-181m, a growth of ~1%
qoq – larger peers have guided for ~3-5% qoq revenue growth. Guidance for net
profits is at $22.5-23.0m, another sequential decline (at a constant exchange rate
assumption of Rs45/$).
Other key highlights — (1) US revenues grew ~6% qoq while Europe was up ~5%.
(2) ADM grew ~5% qoq, Product Engineering grew ~12% while BPO witnessed a
strong 30%+ growth on a low base; Package Implementation declined ~2% qoq.
(3) Insurance and Manufacturing had strong growth of ~6-8% qoq while Financial
Services and Telecom were slow at ~1-2% qoq. (4) Headcount addition of ~1,650
employees was the highest in the last many quarters. (5) Staff attrition increased
~440bp qoq to ~26% (LTM basis).
factor in the Rs63/share interim dividend as well as the quarterly results. Our
CY10/11/12 estimates are lower by ~3/12/11% respectively. Our target price of
Rs465 is based on 13x Mar’12E EPS (earlier Rs520 based on 13x Dec'11E).
Maintain Sell (3M) — Patni has historically traded at a meaningful discount to
larger peers due: (1) lower exposure to growth segments, and (2) higher supplyside
challenges in a buoyant demand environment – we don’t see a change yet.
M&A is the only likely positive trigger. However, Patni remains a good defensive
stock – cash generation remains good and net cash is ~23% of market cap.
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