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Business News/ Money / Personal-finance/  Patni: growth likely to slow in Dec quarter
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Patni: growth likely to slow in Dec quarter

Patni: growth likely to slow in Dec quarter

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Patni Computer Systems Ltd has reported a strong 6.7% growth in revenue in dollar terms for the September quarter. Revenue had declined by 2.8% in the June quarter, indicating that growth has revived.

But then, its guidance for the December quarter indicates growth is likely to slow to around 1%. It is the reason the markets were not excited about the volume-led revenue growth in the September quarter. Patni shares were flat on Wednesday.

According to chief financial officer Surjeet Singh, the subdued growth outlook for the December quarter is because revenue from recently won projects will pick up only in the end of the December quarter and early in the March quarter.

He adds that growth is generally lower in the December quarter owing to a lesser number of billing days. But guidance from other companies such as Infosys Technologies Ltd and Wipro Ltd suggests the growth momentum will be maintained in the December quarter.

Even while revenue grew at a handsome rate, earnings before interest, tax, depreciation and amortization rose by just 1% owing to a 1 percentage point fall in profit margin in the September quarter. Employee utilization was marginally lower last quarter.

The company’s net profit guidance for the December quarter suggests operating profit margin may continue to be under pressure. Excluding forex gains and losses, the company’s net profit is estimated to decline by between 3.7% and 5.8%. Considering that other income is expected to rise from a low base in the September quarter, operating profit may fall at an even higher rate. Singh’s response to this was that this is because of the lower number of billing days in the December quarter.

The company had changed the nature of its treasury investments from liquid funds to short-term corporate deposits, owing to which other income fell in the September quarter. Other income is expected to now rise, though it would not reach the peak reached in the June quarter, considering that the firm has paid out a hefty special dividend since then.

In sum, the outlook on both revenue growth and operating profit is not exciting for the quarter to December. Patni’s price-earnings multiple is inexpensive at around 11 times estimated 2010 earnings, and so the downside to the stock seems limited.

But at the same time, the lacklustre growth outlook means the upside tool may be limited.

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Published: 28 Oct 2010, 12:18 AM IST
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