Not Rated
CMP: Rs 328 Target Price: N A
Patni reported revenues of US$ 162 mn (+3.5% QoQ) marginally ahead of expectations
Operating profits at Rs 1649 mn(+36% YoY, +15.5% QoQ) came in significantly higher than expectations driven by cost control measures, in line with the trends exhibited in almost all the IT service company results reported till date during the quarter. EBIT mgns are the highest ever reported in the past 9 quarters.
Net profits at Rs 1368 mn (+32% YoY), beat estimates by a mile driven by superlative margin beat
Increase our already higher than consensus CY09/CY10 EPS estimates by ~46% to Rs 34.2 and Rs 38.6.
Patni continues to deliver better than expected, vindicating our positive stance on the company in the recent months. We expect significant EPS upgrades on the street and would not rule out a further 25% upside from the current levels. (even after a 100%+ move over the past 3 months)
Encouraged by co's measures to invest in hiring senior and middle level management, which should bode well for growth going forward.
Continues to deliver along our positive thesis
Patni reported revenues at US$ 162 mn (+3.5% QoQ), marginally ahead of our expectations (Emkay est of US$ 160.7 mn). However the stellar operating margin performance stood out with the company reporting highest op mgns ever in the past 9 quarters. Net profits at Rs 1368 mn(+32% YoY) beat estimates by a mile ( Emkay est of Rs 917 mn) led by significant out performance on margins. Revenue growth was led by ~2.2% sequential volume increase and project ramp up in a top client where business has shifted from Satyam.
Top clients lead the growth
Revenues from Top 5 clients grew by 14.3% QoQ as one of the top clients shifted business from Satyam to Patni during the quarter. Revenues from Insurance were up 12% sequentially. The company's active client count reduced to 294 V/s 320 during March'09 as a result of natural client attrition (note that Patni has historically had a long tail of client accounts). We would expect growth within top 5 clients to continue going forward as our channel checks indicate further ramp up in an existing insurance client and another multiple year multiple mn new client win in the recent past.
Up CY09/CY10 EPS estimates by ~46%
We have revised our CY09/CY10 EPS estimates upwards by ~46% to Rs 34.2 and Rs 38.6 respectively and expect similar upgrades from the street as well. Even after a 100%+ run up in the stock price over the past 3 months, we do not rule out a further 25% upside from current levels.
Positive stance gets reinforced
Our positive view on Patni over the past few months continues to get vindicated with the company not only taking quick steps to take significant cost control measures but also making future investments in addressing the senior and middle management lacuna recently (Patni had suffered exit of several key executives post FY07 which had impacted business prospects negatively) . Co mgmt during the investor call indicated that it was looking at inorganic opportunities to fill up service line/vertical portfolio gaps. We continue to maintain positive stance towards Patni.
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