PATNI COMPUTER SYSTEMS LTD
PRICE: RS.436 RECOMMENDATION: BUY
TARGET PRICE: RS.520 CY10E PE 10X
q PCS' Q3CY09: Revenues and EBITDA inline with estimates, PAT aided by
higher other income, and lower tax outgo on prior IRS re-statements.
Operational improvement on the back of higher utilization, greater offshore;
increased SG&A investments, as expected
q Growth rates likely to shore up as company specific initiatives start contributing
and macro for the sector improves gradually.
q Outlook on business materially better; velocity of business though is
still to pick up. Account for Q3CY09 results; tweak price target and estimates.
q Maintain BUY with target price of Rs.520 (Rs.500 earlier) as we revise
earnings marginally for CY09E and CY10E.
q Consistent revenue performance, consistent scale up of accounts and
margin gains could increase the scope for a sustained stock re-rating.
Opine sustained execution could increase the scope for a re-rating as
PCS still trades at 10x CY10E EPS. High proportion of net cash on the
balance sheet - cRs.130 per share will likely provide downside support.
n Patni's 3QCY09 results inline with estimates with revenues at Rs.8.04bn (up 4%
QoQ) and an EBITDA of Rs.1.6bn. PAT of Rs.1.71bn, though was higher
boosted by higher other income, and a lower tax outgo (write backs due to
prior year IRS tax reviews).
n Reported USD revenues were ahead of the guidance put out by the company
and came in at $167.2mn, aided by volume growth and beneficial cross currency
impacts. Reported EBITDA surprised positively given the cost containment,
higher utilization and greater offshore contribution.
n Positively, the company has started stepping up on SG&A investments; this cost
head was up 16.3% QoQ. In the previous quarter (Q2CY09) SG&A had declined
11% QoQ given the company's focus on cost containment.
n PCS guidance for Q4CY09 points to revenues of $168-169mn and profits (excluding
forex) of $24-25mn. The Q4CY09 guidance points to a flattish outlook,
and possibly reflects the still slack but stable demand environment.
n Revise price target and estimates to account for the above estimate Q3CY09
results and lower losses in the other income that are reflected in our DCF
model.
n Estimate an EPS of Rs.40.1 (Rs.37 previously) for CY09E- a growth of c17%
given the decent performance thus far and the impact of cost containment initiatives.
In CY10E, we expect volume growth to return, and estimate an 8% rise
in revenues. With our assumptions on the INR, and expectations of increasing
S&M investments, in a business up cycle we expect margins to remain at
CY09Ea levels. Estimate an EPS of Rs.43.3 in CY10E.
n Maintain BUY with target price of Rs.520 (Rs.500 earlier) as we revise earnings
for CY09E, and CY10E.
n Consistent revenue performance, consistent scale up of accounts and margin
gains could increase the scope for a sustained stock re-rating. Opine sustained
execution could increase the scope for a re-rating as PCS still trades at 10x
CY10E EPS. High proportion of net cash on the balance sheet - cRs.130 per
share will likely provide downside support.
