Docstoc

Patni Computers Q3CY11 - PL

Document Sample
Patni Computers Q3CY11 - PL Powered By Docstoc
					                                                                          Patni Computer 
                                                                          Concerns on disclosure, reiterate ‘REDUCE’ 

October 18, 2011                                                          Patni Computer (Patni) reported Q3CY11 results, touch below our expectation on
                                                                          revenue. However, strong margin bounce-back was a positive surprise. We expect




                                                                                                                                                                                                Q3CY11 Result Update 
Shashi Bhusan                                                             an anaemic revenue growth, with margins witnessing mean reversal to mid-teens.
shashibhusan@plindia.com                                                  Hence, we retain our ‘Reduce’ rating, with a target price of Rs300.
+91-22-66322300
                                                                              Revenue  below,  Margins  firm: Patni reported revenue growth of 8.2% QoQ
                                                                              (Q2CY11: -4.3%) to Rs8.8bn (PLe: Rs8.8bn, Cons: Rs8.6bn) and 3.9% QoQ
                                                                              (Q2CY11: -3.4%) in USD terms to $191m (PLe: $192.8mn) (1.3% of growth is
                                                                              from iGate-generated business). EBITDA margins expanded by ~1563bps to
                                                                              ~17.6% (PLe: 14%, Cons: 11.7%) due to rupee depreciation (prev. quarter one-
Rating                                                         Reduce         time G&A expense of $17m). EPS grew by 630% to Rs5.91 (PLe: Rs4.51, Cons:
Price                                                           Rs337         Rs5.63). Hedge outstanding was US$397m. The management indicated lower IT
Target Price                                                    Rs300         budget for CY12 as compared to CY11.
Implied Upside                                                 -11.0%
Sensex                                                         16,748         iGate‐Patni  integration  on  track: The integration of front-end joint-go-to-
                                                                              market is completed. The back-office shared services integration, which started
(Prices as on October 18, 2011) 
                                                                              in the previous quarter, will be over by Q4CY11. Full delivery integration will
                                                                              take 12-18 months, but 3 levels of delivery leadership are already integrated.
Trading data 
Market Cap. (Rs bn)                                              40.0         Reduced disclosure may raise concern: In Q2CY11, the company did not share
Shares o/s (m)                                                  137.1         any information on services line, whereas in the current quarter, it didn’t give
3M Avg. Daily value (Rs m)                                       64.6         revenue break-up by verticals. We see reduced disclosure as a matter of grave
                                                                              concern and this raises corporate governance issue. We believe that lower
                                                                              disclosure would only lead to de-rating.
Major shareholders                                                            Valuation  &  Recommendations:  Patni continues to perform below par as
Promoters                                                      67.10%         compared to its peers. We continue to see anaemic growth margins reversing
Foreign                                                         6.89%         back to mid-teen levels. We will wait to review our rating on the stock, after we
Domestic Inst.                                                  1.71%         see benefits of iGate-Patni integration. Hence, currently, we reiterate our
Public & Other                                                 24.30%         ‘Reduce’ rating, with a TP of R300, 10x CY12E earnings estimates.
                                                                          Key financials (Y/e December)                        2009               2010              2011E             2012E
                                                                          Revenues (Rs m)                                    31,466             31,881             35,196            39,774
Stock Performance 
                                                                               Growth (%)                                      (1.6)                1.3               10.4             13.0
(%)                 1M                         6M                12M 
                                                                          EBITDA (Rs m)                                       6,180              5,843              4,713             6,487
Absolute           12.4                      (29.1)            (26.7)
                                                                          PAT (Rs m)                                          5,746              6,047              3,367             3,938
Relative           13.5                      (16.8)             (9.7)
                                                                          EPS (Rs)                                             41.9               45.9                25.6             29.9
                                                                               Growth (%)                                      16.9                 9.6             (44.3)             16.9
                                                                          Net DPS (Rs)                                           3.2                3.1                5.2               5.5
Price Performance (RIC: PTNI.BO, BB: PATNI IN)
                                                                          Source: Company Data; PL Research 
  (Rs)
  600
                                                                          Profitability & Valuation                             2009               2010             2011E            2012E
  500
                                                                          EBITDA margin (%)                                     19.6               18.3              13.4             16.3
  400
                                                                          RoE (%)                                               18.8               15.2               7.4              8.1
  300
                                                                          RoCE (%)                                              17.7               14.5               7.1              7.9
  200
                                                                          EV / sales (x)                                         0.8                0.6               0.4              0.3
  100
                                                                          EV / EBITDA (x)                                        4.1                3.0               3.2              2.1
     0
                                                                          PE (x)                                                 8.0                7.3              13.2             11.3
                           Feb-11
                  Dec-10




                                             Jun-11

                                                      Aug-11
         Oct-10




                                                                 Oct-11
                                    Apr-11




                                                                          P / BV (x)                                             1.3                1.0               0.9              0.9
                                                                          Net dividend yield (%)                                 0.9                0.9               1.5              1.6
Source: Bloomberg                                                         Source: Company Data; PL Research 
 Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that
 the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
 Please refer to important disclosures and disclaimers at the end of the report
                                                                                                                                     Patni Computer


Exhibit 1:    Revenue below expectation, margins ahead 
(US$ m)                               Q3CY11       Q2CY11             QoQ     Q3CY10                 YoY              Cons          PL(E) Var (v/s Ple)
Total Operating Income                  191.0        183.8            3.9%      178.8               6.8%                           192.8         ‐1.0%
Rupee (Rs m)                            8,890        8,219            8.2%      8,227               8.1%            8,684.7       8,832.3         0.7%


EBITDA                                1,562.4        160.1          875.6%    1,460.4               7.0%            1,012.0       1,236.5        26.4%
  EBITDA Margin                         17.6%         1.9%        1563 bps      17.8%            ‐18 bps             11.7%         14.0%       357 bps
Pre Tax Income                          885.6        197.4          348.7%    1,595.4              ‐44.5%            891.3         805.7          9.9%
Tax                                      93.0         89.0            4.4%      276.6              ‐66.4%            149.8         217.5        ‐57.3%
  Tax Rate                              10.5%        45.1%        ‐3460 bps     17.3%         ‐684 bps               16.8%         27.0%      ‐1650 bps
PAT                                     792.6        108.4          631.4%    1,318.8              ‐39.9%            741.5         588.2         34.8%
EPS                                      5.91         0.81          630.4%        9.85             ‐40.0%             5.63          4.51         31.1%

Source: Company Data, Bloomberg, PL Research 

                                                 Exhibit 2: Positive surprise from Europe, contrary to peers 
                                                 By Geography                            Q2CY11        Q1CY11             QoQ      Q2CY10          YoY
                                                 Americas                                    150             146          2.6%         144        4.2%
                                                 EMEA                                         27              24         12.6%          21       28.5%
                                                 APAC                                         14              14          2.5%          14        1.4%
                                                 Total                                       191             184          3.9%         179        6.8%


                                                 as % of Total                            78.3%             79.3%     ‐100 bps       80.3%     ‐200 bps
                                                 Americas                                 14.2%             13.1%      110 bps       11.8%     240 bps
                                                 EMEA                                       7.5%             7.6%      ‐10 bps        7.9%      ‐40 bps
                                                 APAC                                        150             146          2.6%         144        4.2%

                                                 Source: Company Data, PL Research 

                                                 Exhibit 3: FPP jump improves scope for productivity improvement 
                                                 Revenue (Project Type)               Q2CY11          Q1CY11             QoQ      Q2CY10           YoY
                                                 Fixed Price                              88.4              84.2         5.0%         80.3       10.1%
                                                 Time & Material                         102.5              99.6         2.9%         98.5        4.1%
                                                 Total                                    191.0         183.8            3.9%        178.8        6.8%


                                                 % of Total Revenue 
                                                 Fixed Price                             46.3%         45.8%           50 bps       44.9%      140 bps
                                                 Time & Material                         53.7%         54.2%           ‐50 bps      55.1%      ‐140 bps

                                                 Source: Company Data, PL Research 




October 18, 2011                                                                                                                                     2
                                                                                              Patni Computer


                   Exhibit 4: Employee addition weak 
                   Employee metrics                     Q2CY11     Q1CY11           QoQ      Q2CY10        YoY
                   Total employees                      17,853     18,372          ‐2.8%     16,556       7.8%
                   Offshore                             14,391     14,662          ‐1.8%     13,394       7.4%
                   Onsite                                3,462      3,710          ‐6.7%      3,162       9.5%


                   Sales & Support Staff                 1,169      1,347      ‐13.2%         1,531     ‐23.6%
                   Net Addition                           (519)      (190)     173.2%         1,663    ‐131.2%

                   Source: Company Data, PL Research 




                   Exhibit 5: Utilization expected to go up in the 78‐79% range 
                   Revenue Mix and Utilization          Q2CY11     Q1CY11           QoQ      Q2CY10        YoY
                   Effort ‐ Service (Person months)                                                            
                    - Onsite                             25.2%      26.8%     ‐160 bps        26.0%     ‐80 bps
                    - offshore                           74.8%      73.2%      160 bps        74.0%     80 bps
                   Revenue ($ m) 
                    - Onsite                               100          95          5.7%         98       2.5%
                    - offshore                               91         89          2.0%         81      12.0%
                   Total                                    191        184          3.9%        179       6.8%


                   Revenue Mix 
                    - Onsite                             52.4%      51.5%          90 bps     54.6%    ‐220 bps
                    - Offshore                           47.6%      48.5%      ‐90 bps        45.4%    220 bps


                   Utilization                           78.5%      75.7%      280 bps        74.0%    450 bps

                   Source: Company Data, PL Research 




October 18, 2011                                                                                             3
                                                                                                                                                 Patni Computer
Income Statement (Rs m)                                                           Balance Sheet Abstract (Rs m)   
Y/e December                     2009           2010          2011E     2012E     Y/e December                     2009              2010        2011E     2012E
Net Revenue                     31,466         31,881         35,196    39,774    Shareholder's Funds               35,837          43,714       47,353    49,349
Raw Material Expenses           19,433         19,936         22,903    25,852    Total Debt                            —               —            —         —
Gross Profit                    12,033         11,945         12,293    13,922    Other Liabilities                  2,106           1,799        1,831     1,772
Employee Cost                        —             —              —         —     Total Liabilities                 37,943          45,512       49,184    51,120
Other Expenses                    5,853         6,102          7,580     7,435    Net Fixed Assets                   7,082           7,497        8,241     8,402
EBITDA                            6,180         5,843          4,713     6,487    Goodwill                           5,262           5,943        6,050     5,854
Depr. & Amortization                779           770          1,721     2,225    Investments                          400             161          164       159
Net Interest                    (1,147)         (885)          (766)     (756)    Net Current Assets                23,637          30,298       32,784    34,778
Other Income                        573         1,853          1,217     1,206         Cash & Equivalents           21,075          26,779       29,050    30,917
Profit before Tax                 5,975         6,925          4,209     5,468         Other Current Assets          7,851           8,537        8,948     9,239
Total Tax                           228           879            842     1,530         Current Liabilities           5,289           5,017        5,213     5,378
Profit after Tax                  5,746         6,047          3,367     3,938    Other Assets                       1,562           1,557        1,585     1,534
Ex-Od items / Min. Int.              —             —              —         —     Total Assets                      37,943          45,457       48,824    50,726
Adj. PAT                          5,746         6,047          3,367     3,938
Avg. Shares O/S (m)               137.1         131.6          131.6     131.6
EPS (Rs.)                          41.9          45.9           25.6      29.9

Cash Flow Abstract (Rs m)                                                         Quarterly Financials (Rs m)     
Y/e December                      2009           2010         2011E     2012E     Y/e December                     Q2FY10        Q3CY11         Q3FY10 Q4FY10E
C/F from Operations                5,049         7,296          4,935     5,916   Net Revenue                           8,161        8,893        8,475     8,970
C/F from Investing               (4,262)         6,176        (2,464)   (2,386)   EBITDA                                1,640        1,562        1,691     1,737
C/F from Financing                 (731)             4          (682)     (720)   % of revenue                           20.1         17.6         20.0      19.4
Inc. / Dec. in Cash                   56        13,476          1,790     2,809   Depr. & Amortization                    177          515          179       188
Opening Cash                       2,993         2,888        16,658    17,849    Net Interest                             —         (156)           —         —
Closing Cash                       3,049        16,364        18,448    20,659    Other Income                            209        (161)          228       237
FCFF                               3,106         4,664          2,408     3,650   Profit before Tax                     1,672          886        1,740     1,786
FCFE                               3,106         4,664          2,408     3,650   Total Tax                               309           93          331       331
                                                                                  Profit after Tax                      1,363          793        1,409     1,455
                                                                                  Adj. PAT                              1,363          793        1,409     1,455

Key Financial Metrics                                                             Key Operating Metrics 
Y/e December                      2009           2010         2011E     2012E     Y/e December                              2009       2010       2011E    2012E
Growth                                                                            Volume (persons)                         55,922     63,050      68,725   78,690
Revenue (%)                        (1.6)            1.3          10.4     13.0    Realization (US$ / Hr)                     28.7       26.4        26.3     26.8
EBITDA (%)                         21.1           (5.5)        (19.3)     37.6    Currency (USDINR)                          48.0       45.4        46.3     44.8
PAT (%)                            27.1             5.2        (44.3)     16.9    SW. Devp. Cost (% of Sales)                61.8       62.5        65.1     65.0
EPS (%)                            16.9             9.6        (44.3)     16.9    SG&A (% of sales)                          18.6       19.1        21.5     18.7
Profitability                                              
EBITDA Margin (%)                  19.6           18.3          13.4      16.3    Revenue (US$ m)                             702         761        889    1,043
PAT Margin (%)                     18.3           19.0           9.6       9.9    EBITDAM Expansion/(Erosion) (bps)         (131)       (753)      (242)      (29)
RoCE (%)                           17.7           14.5           7.1       7.9    Tax Rate (%)                               12.7        20.0       28.0     28.0
RoE (%)                            18.8           15.2           7.4       8.1    Source: Company Data, PL Research. 
Balance Sheet                                              
Net Debt : Equity                  (0.6)          (0.6)         (0.6)     (0.6)
Net Wrkng Cap. (days)                 —              —             —         —
Valuation                                                  
PER (x)                              8.0            7.3         13.2      11.3
P / B (x)                            1.3            1.0          0.9       0.9
EV / EBITDA (x)                      4.1            3.0          3.2       2.1
EV / Sales (x)                       0.8            0.6          0.4       0.3
Earnings Quality                                           
Eff. Tax Rate                        3.8          12.7          20.0      28.0
Other Inc / PBT                      9.6          26.8          28.9      22.1
Eff. Depr. Rate (%)                  6.0           5.5          10.4      11.7
FCFE / PAT                          54.1          77.1          71.5      92.7
Source: Company Data, PL Research. 


October 18, 2011                                                                                                                                                4
                                                                                                                                                              Patni Computer




Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

Rating Distribution of Research Coverage                                                   

                        70%
                                               58.5%
                        60%
  % of Total Coverage




                        50%
                        40%
                        30%   21.8%
                                                               18.4%
                        20%
                        10%
                                                                               1.4%
                        0%
                               Buy         Accumulate          Reduce          Sell

PL’s Recommendation Nomenclature                                                       

BUY                            :     Over 15% Outperformance to Sensex over 12-months         Accumulate           :   Outperformance to Sensex over 12-months

Reduce                         :     Underperformance to Sensex over 12-months                Sell                 :   Over 15% underperformance to Sensex over 12-months

Trading Buy                    :     Over 10% absolute upside in 1-month                      Trading Sell         :   Over 10% absolute decline in 1-month

Not Rated (NR)                 :     No specific call on the stock                            Under Review (UR)    :   Rating likely to change shortly 

This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as
information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be
considered or taken as an offer to sell or a solicitation to buy or sell any security.

The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy
or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information,
statements and opinion given, made available or expressed herein or for any omission therein.

Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The
suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an
independent expert/advisor.

Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or
engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.

We may from time to time solicit or perform investment banking or other services for any company mentioned in this document.

For Clients / Recipients in United States of America: 

All materials are furnished courtesy of Direct Access Partners LLC ("DAP") and produced by Prabhudas Lilladher Pvt. Ltd. ("PLI"). This material is for informational
purposes only and provided to Qualified and Accredited Investors. You are under no obligation to DAP or PLI for the information provided herein unless agreed to by
all of the parties. Additionally, you are prohibited from using the information for any reason or purpose outside its intended use. Any questions should be directed to
Gerard Visci at DAP at 212.850.8888.




October 18, 2011                                                                                                                                                            5

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:6
posted:11/5/2011
language:English
pages:5