Stocks

Key verticals expand for Patni

K. Venkatasubramanian BL Research Bureau | Updated on February 09, 2011

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Patni Computer's financials have managed to meet market expectations in the recent December quarter enabling the company to close fiscal 2010 on a reasonable note.

Robust client additions, improved contribution from its insurance and manufacturing verticals, and increased traction in BPO services are key positives for the company.

An increasing trend in winning fixed-price contracts and an optimal offshore component may help bettering margins. On the flip side, sliding performance from the telecom vertical and steep increase in attrition levels pose challenges for the company.

In the fourth quarter, Patni saw revenues increase by 1.7 per cent, while net profits expanded by 21.1 per cent, on a sequential basis. Being a holiday-dominated quarter meant lower volumes and also utilisation levels (76 per cent) which may explain the slower revenue growth.

Operating metrics improve

Patni has added 19 new clients during the quarter, one of its best in recent times. What is more appreciable is that there have seen significant addition in the $5-10 million category. These facts suggest a revival in client IT spends.

Insurance and manufacturing, which are key verticals for the company, have increased contributions, with each vertical now accounting for over 30 percent of revenues. As with most IT players, the telecom vertical continues to drag and is yet to see any significant revival.

While BPO has increased contribution to revenues, application development and maintenance services has held steady. Its key geography of operation – the US – too has witnessed robust traction. However, the company is yet to see significant increase in discretionary, higher-billed services.

Fixed-price contracts that ensure better realisations than time and material ones, has steadily improved over the last 3-4 quarters and now account for 46.8 percent of revenues. The offshore component of revenues too is steadily rising which would ensure cost optimisation.

Attrition continues to be quite high at 25.2 per cent and any significant wage increase to stem this could dent margins.

Going forward, in CY11, the merger with iGate is likely to be completed and is expected to provide considerable synergies.

The stock closed at Rs 462.4, down marginally, in a falling market.

Published on February 09, 2011

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