Neutral on Patni Computer Systems - Motilal Oswal

PATNI COMPUTERS 4QCY10: Operating performance below estimate; Higher PAT on Forex gains and tax write-back; Neutral

Revenue growth of 2.4% QoQ to US$183m was entirely driven by volumes (v/s est. of US$184m and guidance of US$180-181m).

Operating margin declined 160bp QoQ to 13.7% on: (a) 160bp sequential drop in utilization to 72.4%; and (b) impact of INR appreciation v/s the US$.

Unlike its top-tier peers, realization was flat QoQ, and up marginally by 0.2% for the full year.

The company discontinued its practice of giving guidance in order to align its practices with the new promoter iGate

Our operating estimates are largely unchanged post the results. However, we have revised downwards our EPS estimate for CY11 by 7% on higher taxation guidance. We expect Patni to register revenue CAGR of 17.3% over CY10-12 and an EPS CAGR of 3.5% during this period. The stock trades at 11.8x CY11E and 10x times CY12E EPS. Maintain Neutral, with a target price of Rs500, based on 11x CY12E EPS.

Source : Equity Bulls

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