Patni Computers

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Date of report

Wednesday, May 07, 2008

Company

Patni Computer Systems Limited - Quick & Dirty Analysis

Analyst

Dhananjayan J

Contact

[email protected], [email protected]

Dirty Analysis

Table of Contents (Please enable the macro attached to this file)

Fact Sheet

>>

Quick & Dirty Analysis

>>

Segment

>>

Disclaimer

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Fact Sheet

Patni Computer Systems Ltd 599(IT) Patni Computer Systems Limited (Patni) is primarily engaged in the business of information technology 549 consulting and software development. Most of the business of Patni is subcontracted from its subsidiary companies in the United States, United Kingdom and Germany. The Company provides multiple 499 service offerings to its clients across various industries comprising financial services, manufacturing companies 449and others, such as energy and utilities, telecom, retail and hospitality companies. The various service offerings 399 comprise application development and maintenance, enterprise application systems, enterprise 349 system management, research and development services and business process outsourcing. 299 249 199 4 71 1 R R R R R R Website http://www.patni.com/ / / 0/ o o o o o o 22/ 2w ww ww w Buyback Special situation Pro forma valuation Price ratio Price to earnings Price to free cash flow Price to tangible book value

7.3 21.1 1.5

Enterprise value ratio EV / Sales EV / EBITDA EV / EBIT EV / (EBITDA-Capex)

0.9 4.5 5.5 10.8

Debt and interest coverage Net Debt / EBITDA EBIT / Interest expense

NA 30.1

Yield Ratio Dividend yield Earnings yield FCF1 yield

1.1% 10.1% 3.9%

Return on Assets Return on operating assets Return on capital invested

25.7% 43.2%

Operating margins EBITDA EBIT Net income

20.5% 16.7% 13.3%

Depreciation Vs. Capex

Capex

The above valuation ratios are computed after assuming buyback in the LTM financial numbers published by the company. (Refer QAD sheet)

Conclusion Buyback announced by the company does not provide any room for further valuation. The operating margin have come compared to Q107 as well as whole fiscal year 2007. This is inspite of some marginal gain in FOREX - INR Vs. US Dollar. No margin decline can be recouped in remaining 3 quarters of 2008. In our opinion, we believe that it is very difficult as 80% of re Capex is more than depreciation. So we believe that the buyback announced by the company won't change the current valuatio

Buyback announced by the company does not provide any room for further valuation. The operating margin have come compared to Q107 as well as whole fiscal year 2007. This is inspite of some marginal gain in FOREX - INR Vs. US Dollar. No margin decline can be recouped in remaining 3 quarters of 2008. In our opinion, we believe that it is very difficult as 80% of re Capex is more than depreciation. So we believe that the buyback announced by the company won't change the current valuatio

Our Verdict:

Overvalued - avoid.

599 549 499 449 399 349 299 249 199 4 71 1 R R R R R R R R R R R R R R R R R R R R R R R R / / 0/ o o o o o o o o o o o o o o o o o o o o o o o o 22/ 2w ww ww ww ww ww ww ww ww ww ww ww w

rating margin have come down by 6% in Q108 when X - INR Vs. US Dollar. Now the question is whether this very difficult as 80% of revenue is from USA. Moreover hange the current valuation of the stock.

QUICK & DIRTY ANALYSIS (Amt in '000) Patni Computer Systems Limited Revenue Growth Other income Personnel costs Selling, general & administrative costs EBITDA Margin Depreciation & amortization EBIT Margin Interest expenses Interest income EBT Margin Tax @ 25% Net income Margin Outstanding shares EPS Adjusted EPS

3M 3/07 6,796,257.00

2007 26,911,455.00

365,019.00 3,706,781.00 1,643,911.00 1,810,584.00 26.6% 176,279.00 1,634,305.00 24.0% 30,553.00

895,934.00 15,389,630.00 6,235,334.00 6,182,425.00 23.0% 984,757.00 5,197,668.00 19.3% 147,225.00 516,125.00 5,566,568.00 20.7% 1,391,642.00 4,174,926.00 15.5% 139,030.30 INR 30.03

1,603,752.00 23.6% 400,938.00 1,202,814.00 17.7% 139,030.30 INR 8.65

Non recurring items Non recurring income Provision for decline in the fair value of investment Profit on sale of fixed assets Profit on sale of non trade investments

3M 3/08 6,933,510.00 2.0% 180,372.00 4,072,655.00 1,881,406.10 1,159,820.90 16.7% 193,896.90 965,924.00 13.9% 33,988.00 931,936.00 13.4% 232,984.00 698,952.00 10.1% 139,030.30 INR 5.03

13.00 11,959.00 266,043.00

Total assets Goodwill Cash Deferred tax assets Investments - cash equivalents Operating assets Return on operating assets Fixed assets Current assets excl cash Current liabilities excl debt Capital employed Return on capital employed Cash Debt Shareholder's equity - book value Tangible Book Value (TBV) TBV/share Capex (net) Notional FCF1 (before investment in working capital) FCF1/share Adj FCF1/share Price

792,789.00

3,350,519.00

660,130.00

Mcap EV Adj Mcap EV/Sales EV/EBITDA EV/EBIT EV/(EBITDA-Capex) PE P/FCF1 P/TBV Adj PE Adj P/FCF1 Net debt/EBITDA EBIT/Interest expense Dividend per share Dividend yield Earnings yield Notional FCF1 yield

INR 3.00

LTM 3/08 27,048,708.00 711,287.00 15,755,504.00 6,472,829.10 5,531,661.90 20.5% 1,002,374.90 4,529,287.00 16.7% 150,660.00 516,125.00 4,894,752.00 18.1% 1,223,688.00 3,671,064.00 13.6% 139,061.00 INR 26.40 INR 24.43

Buyback

7,292.31

Pro forma 3/08 27,048,708.00 711,287.00 15,755,504.00 6,472,829.10 5,531,661.90 20.5% 1,002,374.90 4,529,287.00 16.7% 150,660.00 431,673.28 4,810,300.28 17.8% 1,202,575.07 3,607,725.21 13.3% 131,768.69 INR 27.38 INR 25.78

35,345,911.00 4,329,992.00 1,564,329.00 601,814.00 11,204,083.00 17,645,693.00 25.7%

35,345,911.00 4,329,992.00 1,564,329.00 601,814.00 11,204,083.00 17,645,693.00 25.7%

8,791,635.00 8,854,058.00 7,163,890.00 10,481,803.00 43.2%

8,791,635.00 8,854,058.00 7,163,890.00 10,481,803.00 43.2%

12,768,412.00 22,462.00 28,121,773.00 23,791,781.00 INR 171.09 3,217,860.00 1,455,578.90 INR 10.47 INR 8.50 INR 271.05

1,976,580.08

10,791,831.92 22,462.00 28,121,773.00 23,791,781.00 INR 180.56 3,217,860.00 1,392,240.11 INR 10.57 INR 8.97 INR 271.05

37,692,484.05 24,946,534.05 INR 179.39

35,715,903.97 24,946,534.05 INR 189.32

0.9 4.5 5.5 10.8

0.9 4.5 5.5 10.8

10.3 25.9 1.6

9.9 25.7 1.5

7.3 21.1

7.3 21.1

NA 30.1

NA 30.1

INR 3.00 1.1% 9.7% 3.9%

INR 3.00 1.1% 10.1% 3.9%

Segment (Amt in '000) 2005 BUSINESS SEGMENT - REVENUE Financial services 3,186,119.00 Growth % on total sales 16.0% Insurance services 5,502,080.00 Growth % on total sales 27.7% Manufacturing 4,350,112.00 Growth % on total sales 21.9% Telecom 3,047,015.00 Growth % on total sales 15.3% Independent software 2,479,501.00 Growth % on total sales 12.5% Others 1,304,479.00 Growth % on total sales 6.6% Total revenue 19,869,306.00 Total growth

2006

2007

3,990,401.00 25.2% 15.3% 6,069,215.00 10.3% 23.3% 5,654,475.00 30.0% 21.7% 4,907,273.00 61.1% 18.8% 3,696,498.00 49.1% 14.2% 1,762,396.00 35.1% 6.8% 26,080,258.00 31.3%

3,843,033.00 -3.7% 14.3% 6,417,048.00 5.7% 23.8% 6,353,002.00 12.4% 23.6% 3,602,481.00 -26.6% 13.4% 4,503,217.00 21.8% 16.7% 2,192,674.00 24.4% 8.1% 26,911,455.00 3.2%

GEOGRAPHICAL SEGMENT - REVENUE USA 16,844,953.00 Growth % on total sales 84.8% Europe 1,807,755.00 Growth % on total sales 9.1% Japan 855,341.00 Growth % on total sales 4.3% India 63,157.00 Growth % on total sales 0.3% Others 298,100.00 Growth % on total sales 1.5% Total revenue 19,869,306.00 Total growth

21,072,892.00 25.1% 80.8% 3,036,604.00 68.0% 11.6% 975,536.00 14.1% 3.7% 106,859.00 69.2% 0.4% 888,367.00 198.0% 3.4% 26,080,258.00 31.3%

20,995,529.00 -0.4% 78.0% 3,937,050.00 29.7% 14.6% 814,098.00 -16.5% 3.0% 219,475.00 105.4% 0.8% 945,303.00 6.4% 3.5% 26,911,455.00 3.2%

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