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Patni Computer delivers in line again, operating margins improve

Patni Computer delivers in line again, operating margins improve
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First Published: Tue, Feb 16 2010. 01 15 AM IST

Graphics: Yogesh Kumar / Mint
Graphics: Yogesh Kumar / Mint
Updated: Tue, Feb 16 2010. 12 19 PM IST
Patni Computer Systems Ltd reported revenues of $170.2 million (up 1.8% sequentially), marginally ahead of our estimates of $170 million. Operating margins expanded by around 20 basis points sequentially to 21.2% despite rupee appreciation and headcount addition of around 388 during the quarter.
Profits (except one-off write-backs of Rs51.5 crore) beat expectations driven by lower depreciation and higher other income.
Manufacturing continues to show good traction with revenue up 8.6% sequentially post 6% growth seen in September quarter. New client addition picked up to 20 after slow additions for the past two quarters.
The March quarter revenue guidance of $170-174 million implies a 2.2% sequential growth at the upper end.
Graphics: Yogesh Kumar / Mint
Management indicates possibility of winning large deals of around $500 million during the quarter from insurance and communications vertical which it believes would help achieve between 3-4% sequential growth. (Our 2010 revenue estimates imply a 2.6% sequential growth running into the year.)
At the current market price, we believe that valuations at around 11.2 times 2010 earnings per share (EPS), 7.6 times 2011 enterprise value/earnings before interest, tax, depreciation and amortization for return on equities of around 18% are closer to fair levels with a possibility of around 10% upside in stock price from current levels. Any merger and acquisition (not ruled out given the possibility of a stake sale by Patni promoters) would be a further upside risk to the stock price.
Revenue from manufacturing vertical grew by around 8.6% from the preceding quarter on the back of a 6% sequential growth in September quarter. Patni reported a net client addition of 20 customers during the quarter.
We now build in a 11% and 14.1% year-on-year revenue growth for 2010 and 2011, respectively, (against 10% and 13% earlier) resulting in a 2% and 1.2% upgrade in 2010 and 2011 EPS estimates to Rs41.60 and Rs44.30, respectively. We believe that valuations are fair with the promoter stake sale being a upside risk to current stock price.
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First Published: Tue, Feb 16 2010. 01 15 AM IST