Patni (PTI) - Part 1 – Financials - Indian Software Outsourcer Research

The following table summarizes the relevant financials of Patni Computer Systems Limited along with a few others for the year-end 2006. The other companies are listed to allow comparison of relative valuations to a representative big-cap outsourcer (Infosys - INFY), a big-cap US consultancy firm (Accenture - ACN), and a similar sized company in the same industry with comparable business prospects (Covansys - CVNS):



















Stock (T)Employees(E)Revenue(R)R/EIncome(I) Growth(G)Profitability(I/R)P/E
PTI13K570M45K130M170.23 18*
CVNS***8.5K450M53K50M200.11 8**
INFY70K3B43K750M250.2534*
ACN160K18B110K970M80.0527*



  • *** Computer Sciences Corporation (CSC) acquired Covansys July 2007 for a premium of 27% to the closing stock price on April 25, 2007.
  • ** The P/E ratio for Covansys was calculated based on the stock price that CSC is paid for the acquisition - $34/share.
  • * The P/E ratio for Patni, Infosys, and Accenture are based on the current stock price and earnings as of EOY 2006.


It is clear from looking at the Revenue per Employee column and the profitability column in the table that outsourcers have a cost advantage. Also, outsourcers are growing at a faster rate. Patni should benefit from both of these favorable attributes. Further, fundamental analysis of Patni also looks favorable with a projected growth rate of 17% and a year-end P/E of 18.

Computer Sciences Corporation’s acquisition of Covansys might give a good indication on what a US based consultancy firm may be willing to pay for Patni, should such a scenario occur. Covansys had better projected growth but less profitability at the time of the acquisition. It was acquired for roughly 3 times revenue and 38 times earnings. On revenue multiple basis, Patni might command a higher premium, given their profitability is more than two times better. On a P/E ratio basis, Patni might go for a lower premium, given the growth rate is slightly lower. Taking these two factors into consideration, an acquirer might consider 4 times revenue and/or 25 times earnings as reasonable. That would value the company at about 50% above the current price.

Patni Computer Systems Limited Analysis:
  1. Part 1 - Financials.
  2. Part 2 - Business Issues.
  3. Part 3 - Investment Outlook.

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