Our channel checks indicate that Patni has been a relatively larger beneficiary from the Satyam episode, owing to higher overlap of key clients.
Further, the spurt in project cancellations and non-renewals during 1QCY09 (in which volumes declined 9%) have likely moderated.
Management guides for 1-2% US$ q-o-q revenue growth for 2QCY09 and has not missed its guidance for more than 12 quarters. Also, rationalization of employee pyramid could offer further margin levers.
Cash generation is healthy (FCF yield of ~10% on CY10ii), the company has high cash balances (70%+ of market cap) and valuations are cheap (CY10ii EV/EBITDA of 1.0x).
We are upgrading the stock to ADD with a target price of Rs210.