Patni Computer Systems Ltd’s results announcement for the quarter ended December was a non-event as far as the company’s shares go. After all, Patni’s shares are being propped up because of iGate Corp.’s open offer for a 20.6% stake in the company.
Also See| iGate Effect (PDF)
The open offer begins in March and is priced at Rs503 per share, higher than Patni’s current traded price of Rs462. Even if the results were far lower than the market’s expectations, the shares would hardly budge because of the assurance that they can be sold in the open offer.
In any case, investors would now be more interested in knowing how the company performs under the new management. The performance in the December quarter, again, wouldn’t reflect this.
Patni’s results for the year ended December do, however, serve as a reminder that the company is in desperate need of a course correction. Revenue grew by just 7% in dollar terms, during a period when the industry is growing at around 19%, according to Nasscom estimates.
In the past three years, the company’s revenue has grown at a compounded annual growth rate (CAGR) of a mere 1.9%. According to Nasscom estimates, India’s software and services exports are expected to be $59 billion (Rs2.67 trillion today) in FY11, representing a CAGR of 14% in the past three years.
The only saving grace is that Patni’s margins have improved a bit in the past three years, thanks to which earnings growth is a little higher. But even then, at a CAGR of 5.9% in the past three years, even the growth in operating profit is hardly exciting. Last year, operating profit was flat despite the 7% growth in revenue.
While iGate’s management seems to be confident about scripting Patni’s turnaround, its investors are less sure. The former’s shares have dropped by 30% since the time the Street heard of the deal. Patni shares, meanwhile, have been insulated because of the open offer. The stock should most likely correct after the open offer closes next month, and investors should be mindful of that.
Graphic by Yogesh Kumar/Mint
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