Stock Review: Patni

 

Software Co Disappoints With December Quarter Nos, But Seen Gaining Traction

 

PATNI Computer System's performance in the December 2010 quarter is far from encouraging. But what could offer some relief to investors is the fact that the company could retain its business from the top-10 clients while adding more customer accounts during the quarter.

   Its hiring programme and marginal drop in attrition indicate stability in its operations may be just around the corner. Also, its slated integration with the US-headquartered iGATE in the next four quarters would help in operational synergies.

   Patni disappointed with a modest 2.4% sequential growth in dollar denominated revenue for the December quarter. This lagged behind the 4-6% growth reported by its bigger peers. It was also way lower than Patni's own topline growth of 7% in the prior quarter.

   According to Patni's management commentary, the lower topline growth during the December quarter, which was also the fourth quarter of its fiscal, should not be taken as an indicator of the future course. Its CFO Surjit Singh said the company is witnessing traction across its major verticals, including insurance, manufacturing and retail. An indicator of this is the higher number of clients on its list. The company added 19 customers during the fourth quarter, the highest in the last four quarters. The total number of clients has also increased from 260 in the March 2010 quarter to 297.

   Patni's employee utilisation, excluding trainees, fell marginally by 80 basis points (bps) to 76% during the December 2010 quarter following lower number of working days. The management expects the number to improve in the March quarter given the momentum in new account wins.

   At the Wednesday's close of 462.4, Patni's stock trades at a trailing four quarter P/E of nearly 10. Its stock has so far not reacted to the weak trend in the broader market. It has been more or less flat over the past month, while the ET Infotech index has shed nearly 7%. Apart from cheaper valuations, its ensuing integration with its new parent iGATE could be a reason for the stock's stable performance. Analysts expect operating synergies of the combined entity to boost Patni's growth rate once the integration is over. Given this, investors may have to wait for a few more quarters to see a meaningful turnaround in Patni's prospects.