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Patni expects weak growth in 4th quarter

Patni expects weak growth in 4th quarter
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First Published: Thu, Feb 11 2010. 10 14 PM IST

Updated: Thu, Feb 11 2010. 10 14 PM IST
The shares of Patni Computer Systems Ltd had an impressive rally between March and November, rising from a little under Rs100 to Rs500. For one, the shares came off a low base—in early March, the company was valued lower than the cash on its books. Besides, there was an expectation that the company would turn around under a new management.
But the sharp rise in the company’s shares, suggests the markets were expecting results too soon. While the company did well to trim costs last year, revenue growth hasn’t lived up to expectations. As a result, Patni’s shares have underperformed its peers since November, falling 8.3% at a time when the CNX IT index has risen 11.4%.
Graphic: Yogesh Kumar / Mint
In the quarter ended December, revenues grew 1.8% to $170 million (Rs790.5 crore) compared with the September quarter, which is actually a decent rate of growth for a midsize firm. While large-sized firms grew revenue 5-6% last quarter, most midsize firms reported flat growth. Besides, the company has done well to contain costs. In the year till December, operating margin rose 430 basis points, leading to an 18.5% rise in operating profit despite an 8.8% drop in revenues. Of course, the sharp depreciation in the rupee in 2009 would have helped profitability, but the company has trimmed costs as well. It cut the employee base by about 6% last year, for instance. Even in the December quarter, while revenue growth was in line with Street expectations, margin improvement came as a positive surprise.
The concern, however, is on revenue growth. The company has guided for a 0-2% growth in the March quarter, lower than what investors would have liked. Chief financial officer Surjeet Singh says the March quarter guidance shouldn’t be seen as a sign of things to come. This is partly because the quarter has fewer working days compared with the December quarter this time around. Besides, the March quarter is normally a soft one for the insurance sector, which accounts for about 30% of the firm’s revenues.
But unless growth rates pick up, Patni shares should continue to lag its peers. Unless, of course, talk of a takeover of the company resurfaces.
Write to us at marktomarket@livemint.com
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First Published: Thu, Feb 11 2010. 10 14 PM IST