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UBS Investment Research
Patni Computer Systems
I ntegration weighs heavily on Patni
2Q revenue disappoints, profits 90% below estimate
Patni reported revenue of Rs8.2bn (down 3% QoQ), 5.1% lower than our estimate,
implying dollar revenue of US$184mn vs. our estimate of US$195mn. Operating
margin declined to 1.9% led by one-time expense such as stock based
compensation, severance expenses, higher travel and consultancy costs. Patni’s
consolidated net profit declined to Rs108mn from Rs1.18bn in 1Q 2011, 90%
below our estimate and consensus.
Acquisition costs on Patni’s books, incremental revenue to move to iGATE
Given that iGATE now owns 82% stake in Patni, the company has applied that
‘push down’ accounting policy as prescribed by the SEC to its financial statements
post acquisition (15th May 2011). This implies that acquisition-related assets and
liabilities will now be visible on Patni’s books. iGATE management also intends to
move incremental revenue to iGATE instead of Patni over the medium-long term.
Management sceptical of NASSCOM’s 16-18% revenue growth estimate
Patni’s management is cautious on the demand outlook and expects the industry to
grow revenues at 12-13% YoY versus NASSCOM’s outlook of 16-18% YoY. The
management attributed this to continued hesitation of clients to put money in larger
sized projects and continued macroeconomic uncertainty. However, management
believes that Patni’s revenue has bottomed out and will remain stable.
Valuation: retain Neutral, reviewing estimates
We are reviewing our estimates to reflect the “push down” accounting applied
from May 15 2011. Our PT is based on DCF.
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.
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
I ntegration weighs heavily on Patni
2Q revenue disappoints, profits 90% below estimate
Patni reported revenue of Rs8.2bn (down 3% QoQ), 5.1% lower than our estimate,
implying dollar revenue of US$184mn vs. our estimate of US$195mn. Operating
margin declined to 1.9% led by one-time expense such as stock based
compensation, severance expenses, higher travel and consultancy costs. Patni’s
consolidated net profit declined to Rs108mn from Rs1.18bn in 1Q 2011, 90%
below our estimate and consensus.
Acquisition costs on Patni’s books, incremental revenue to move to iGATE
Given that iGATE now owns 82% stake in Patni, the company has applied that
‘push down’ accounting policy as prescribed by the SEC to its financial statements
post acquisition (15th May 2011). This implies that acquisition-related assets and
liabilities will now be visible on Patni’s books. iGATE management also intends to
move incremental revenue to iGATE instead of Patni over the medium-long term.
Management sceptical of NASSCOM’s 16-18% revenue growth estimate
Patni’s management is cautious on the demand outlook and expects the industry to
grow revenues at 12-13% YoY versus NASSCOM’s outlook of 16-18% YoY. The
management attributed this to continued hesitation of clients to put money in larger
sized projects and continued macroeconomic uncertainty. However, management
believes that Patni’s revenue has bottomed out and will remain stable.
Valuation: retain Neutral, reviewing estimates
We are reviewing our estimates to reflect the “push down” accounting applied
from May 15 2011. Our PT is based on DCF.
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.
Statement of Risk
A sharp decline in IT Services spending could result in downward revision of
our earnings estimates.
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