Patni's Q1 revenues up 20% at $156.0 mn

Patni Computer Systems Limited (Patni) today announced its financial results for the first quarter ended 31st March 2007.

Performance Highlights

Performance Highlights for the quarter ended March 31st 2007.

Revenues for the quarter at US$ 156.0 million (Rs. 6,724.1 million).

Up 1.1% sequentially from US$ 154.3 million (Rs. 6,804.9 million)

Up 20.2% YoY from US$ 129.8 million (Rs 5,775.5 million)

Operating Income for the quarter at US$ 30.3 million (Rs. 1,306.0 million)

Up 11.2% sequentially from US$ 27.3 million (Rs 1202.3 million)

Rupee Appreciation impact of ~40 basis points.

Up 70.4% YoY from US$ 17.8 million (Rs 791.0 million)

Net Income for the quarter at US$ 27.8 million (Rs 1,200.3 million)

Up 8.2% sequentially from US$ 25.7 million (Rs 1,134.9 million)

Up 92.8% YoY from US$ 14.4 million (Rs 642.5 million)

EPS for the quarter at US$ 0.20 per share( US$ 0.40 per ADS ) up 8.1% sequentially and 92.1% YoY

Stock based expense for the quarter was US$ 1.0 million as compared to US$ 1.1 million during previous quarter.

Top Customer contribution towards revenue decreased to 11.1% during the quarter from 13.5% in Q4 2006. Revenue concentration of Top 10 clients also reduced to 48.8% from 52.2% in the previous quarter.

We acquired 26 new clients during the quarter. Number of active clients was 252 at quarter end as compared to 239 in Q4 2006.

Future Outlook:

Q2 2007 revenues are expected to be at US$ 163 million and net income (excluding the foreign exchange gain/loss) is expected to be in the range of US$ 22.5 to $23.0 million.

Management comments

Commenting on the Q1 2007 performance, Mr. Narendra K Patni, Chairman and CEO, Patni Computer Systems Ltd., said, "The quarter under review was one of stable growth and profitability enhancement. With Phase one of our state of the art knowledge park now operational our thrust is to drive aggressive profitable growth and escalate our business across newer verticals and service lines. We remain committed to create ongoing growth across the organization and are confident about our business momentum in a healthy demand environment."

Commenting on the performance, Mr. Mrinal Sattawala, Chief Operating Officer, Patni, said, "Our client and service offering profiles continue to strengthen. During the quarter we have added 26 new clients and reduced dependence on Top 5 and Top 10 clients. Higher Value service offerings like Embedded Technology Services and Enterprise Systems Management now form a larger proportion of our revenues. We continue to invest in global sales and marketing and expand geographically in Europe in line with our strategic objectives.

Speaking on the occasion, Mr. Surjeet Singh, Chief Financial Officer, Patni, added, "Continued improvement and sustained thrust on optimizing operating costs have enabled profit improvements over the last few quarters. Investments for growth have continued. Efficient hedging of our foreign currency positions covered the forex risk and improved performance. We are looking to expand our revenue base effectively in existing and new clients with our mix of service offerings. Geographical Expansion coupled with inorganic growth are part of key strategic elements of our plan to drive profitable growth.

Management Discussion & Analysis of Performance

Revenues

Revenues during the quarter were in line with expectations at US$ 156.0 million (Rs 6,724.1 million) representing sequential increase of 1.1% and 20.2% on YoY basis. 26 new clients were added during the quarter.

Gross profit

Gross margins improved above expectations to 35.8% from 35.5% in Q4 2006 net of negative Rupee appreciation impact of 40 basis points. 60 basis points effect of planned utilization change during the quarter at 72.8% (73.7% in Q4) was absorbed by contract price improvements. Absolute Gross Margins in Q1 07 at US$ 55.9 million (Rs 2,408.2 million was higher by 1.9% sequentially and by 21.2% on YOY basis)

Selling and Marketing Expenses

Sales and marketing expenses during the quarter were marginally higher at US$ 11.2 million (Rs. 484.6 million), as compared to $11.0 million (Rs. 485.0 million) in the previous quarter and as percentage of revenues, these expenses were almost stable at 7.2% compared to 7.1%.

G&A expenses

G&A expenses at 10.5% during the quarter were marginally higher per plan at US $16.3 million (Rs. 703.3 million) compared to US $ 15.6 million (Rs. 687.7 million) in the previous quarter due to period costs .

Provision for doubtful debts

During the quarter, provision for doubtful debts was at US$ 0.6 million (Rs. 27.7 million) as against US$ 0.4 million (Rs. 16.6 million) in Q4 2006.

Foreign exchange gain/loss

The Foreign exchange gain for the quarter was US$ 2.6 million (Rs.113.4 million) as compared to loss of US$ 0.6 million (Rs 26.0 million) in Q4 2006.

While mark to market impact of forex contracts taken earlier and revaluation of debtors at the quarter end, resulted in foreign exchange gain of US$ 1.5 million for the quarter. Additionally, revaluation of advance foreign taxes and international tax liabilities resulted in a one time foreign exchange gain of US$1.1 million.

The quarter end rate for debtors revaluation was Rs 43.47. At the end of Q1 2007, we have hedging contracts worth US$ 192.5 million in the range of Rs. 43.86 to Rs. 46.85.

Operating income

Operating income was higher at 19.4% at $30.3 million (Rs 1,306.0 million) against 17.7% or $27.3 million (Rs 1,202.3 million) in Q4 2006. Operating Income grew 70.4% on YoY basis as compared to $17.8 million (Rs 791.0 million) in corresponding quarter of previous year.

Other income

Other income (including interest and dividend income net of interest expenses, profit/loss on sale of investments and other miscellaneous income) stood at US$ 3.6 million (Rs 154.4 million) were in line with estimates of US $ 4.5 million (Rs 197.8 million) in previous quarter, net of one time credit of US$ 1.7 million on account of reversal of interest on tax provisions.

Profit before tax

Profit before tax for the quarter was higher by 6.7% at US$ 33.9 million (Rs. 1,460.3 million) as compared to US$ 31.7 million (Rs. 1,400.1 million) during previous quarter.

Income taxes

Income tax for the quarter was at US$ 6.0 million (Rs 260.1 million) at 17.8% effective tax rate on profit before tax lower than the previous quarter rate of 18.9%.

Net income

Consequently, net income for the quarter was at US$ 27.8 million (Rs 1,200.3 million), an increase of 8.2% as compared to Q4 2006 net income of US$ 25.7 million (Rs 1,134.9 million). Increased focus on margin improvement during previous few quarters resulted in YoY increase of Net Income at 92.8% as compared to corresponding quarter of previous year.

EPS

EPS for the quarter was at US$ 0.20 (Rs 8.68) and US$ 0.40 per ADS marginally higher than US$ 0.19 per share and US $ 0.37 per ADS. EPS increased by 92.1 % on YoY basis from $0.10/ share or $0.21 per ADS.

Balance Sheet and Cash Flow changes

During the quarter, against net income of US$ 27.8 million (Rs 1,200.3 million), cash from operating activities was at US$ 14.1 million (Rs 609.5) net of changes in current assets and liabilities of US$ (-)20.6 million and non cash charges of US$ 6.9 million. These non cash charges comprise of depreciation and amortization of US$ 6.6 million and other charges of US$ 0.3 million.

Net Cash used in investing activities was at US$ 26.1 million (Rs 1,125.9 million) which include net capital expenditure of US$ 18.4 million (Rs 792.8 million) and net investment in securities at US$ 7.7 million (Rs. 333.1 million).

Net cash inflow provided for in financing activities was at US$ 1.1 million (Rs 49.0 million) consisting of proceeds from common shares issued of US$ 1.3 million (Rs. 54.2 million).

Overall cash and cash equivalents (including short term investments) at the close of 31st March 2007 were at US$ 295.1 million (Rs 12,717.5 million), compared to US$ 289.5 million (Rs 12,768.9 million) at the close of Q4 2006.

At the end of Q1 2007, receivables were at US$ 122.6 million (Rs 5,281.9 million) US$ 115.6 million (Rs. 5,099.9 million) in the previous sequential quarter. Days outstanding for the current quarter were at 72 days as compared and 71 days in Q4 2006.

Important Notes to this release:

Patni follows a January "� December fiscal year. The current review covers the financial and operating performance of the Company for the first quarter ended 31st March 2007

Percentage analysis

Any percentage amounts, as set forth in this release, unless otherwise indicated, have been calculated on the basis of the U.S. Dollar amounts derived from our consolidated financial statements prepared in accordance with U.S. GAAP, and not on the basis of any translated Rupee amount. Calculation of percentage amounts on the basis of Rupee amounts may lead to results that are different, in a material way, from those calculated as per U.S. Dollar amounts.

Convenience translation

A Consolidated Statement of Income as per Convenience Translation prepared in accordance with US GAAP is available on page 8 of the Fact Sheet attached to this release. We have translated the financial data derived from our consolidated financial statements prepared in accordance with U.S. GAAP for each period at the noon buying rate in the City of New York on the last business day of such period for cable transfers in Rupees as certified for customs purposes by the Federal Reserve Bank of New York. The translations should not be considered as a representation that such US Dollar amounts have been, could have been or could be converted into Rupees at any particular rate, the rate stated elsewhere in this document, or at all. Investors are cautioned to not rely on such translated amounts.