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Citi Revises Patni’s Target Downwards

August 21, 2007

The market is down 400 points while Patni Computers is up by 5%. What’s happening ? Citigroup in a report released this morning has recommended a BUY on Patni Computer Services with a possible M&A story cooking behind the scenes.

Patni trades at a ~50% discount to Satyam on a one-year forward EV/EBITDA basis, has 25% of its market cap in cash and equivalents, and has underperformed the BSE IT index by ~17% over the past two months. It is a high cash position of $300 Million. Expect a recurring earnings CAGR of ~14% over the next three years, slower than those of peers.

Patni at 7x 2007E EV/EBITDA is at deep discounts to its large peers (Infosys is at 19x and Satyam at 14x) and lower than its mid-cap peers (8-10x). Citi sees an upside bias from current levels, with M&A a possible trigger.

Citi has revised the target for Patni from Rs 565 to Rs 525 based on a 20% target-multiple discount to Patni’s closest peer, Satyam. Target price equates to 15x 2008E earnings.

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