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Thursday, July 2, 2009

Patni Computer Systems:-Can patni be bought at present levels?

Scripscan:Patni Computer Systems Ltd
cmp:260
Traded in:Nse-bse

Story:Patni Computer Systems, the sixth largest software exporter in the country, felt the heat of the global economic slowdown during the March ''09 quarter. Lower volume and pricing pressure on newly negotiated contracts pulled down its dollar denominated revenue that fell by 11% sequentially to Rs 795 crore. The volume declined more sharply at 9% quarter-on-quarter. However, unlike many other IT companies, the impact of cross-currency effect on the company''s topline was only 0.8%, negligible by any measure. This is mainly because it gets not more than 10% of its revenue from European region, which accounted for the bulk of the cross-currency impact.The negative growth in topline had minimal impact on the bottomline, thanks to factors like productivity improvement, cut-down in discretionary spending and better forex management. The rupee denominated net profit was almost flat (compared sequentially) at Rs 77 crore.The company, which gets around 80% of its revenue from America, has seen a substantial sequential decline of 9% in its volume. Going forward, the management expects Europe to provide far more challenges than America in terms of business volume growth. During the quarter gone by, the company witnessed a pricing decline of 1.5% and the management believes the bottom has not reached yet. It expects another fall of 1% in pricing to come in the next few quarters. All these factors would provide more challenges than opportunities for the company in coming quarters. It plans to counter these challenges through better resource utilisation, cautious hiring policy and reduction in different general expenditures. It has frozen lateral hiring and is trying to meet its requirement from already existing resources.One of the positive factors during the quarter were lower foreign exchange losses of Rs 33 crore compared to Rs 61 crore during the December ''09 quarter. Currently, Patni has a total hedged position of $350 million. The impact of this on net profit could have been higher had the effective tax rate remained at the previous level. The tax rate increased to 19% from the earlier 13% mainly due to the expiry of 3 STPI (software technology parks of India) units. Going forward, after the expiry of STPI benefits for all IT companies beyond ''10, the effective tax rate would rise to the normal corporate tax rate level, thereby putting more pressure on the bottomline.A buy at sub 200 levels only for high risk investors rest back out for safer bets.

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