Patni's Q3 2007 Revenues up 11.7% YoY at $169.5 million (Rs. 6,735.7 million), Net Income up 23.9 % at $ 27.6 million (Rs 1,097.8 million)

Mumbai, Maharashtra, India and Cambridge, United States

Patni Computer Systems Limited (Patni) today announced its financial results for the third quarter ended 30th Sep 2007.

Performance Highlights:

Performance Highlights for the quarter ended Sep 30th 2007

-- Revenues for the quarter at US$ 169.5 million (Rs. 6,735.7 million)
-- Up 11.7% YoY from US$ 151.7 million (Rs 6,970.9 million)
-- Up 3.7% sequentially from US$ 163.3 million (Rs. 6,628.1 million)

-- Operating Income for the quarter at US$ 29.0 million (Rs. 1,151.4 million)
-- Up 15.5% (24.2% excluding onetime charge) YoY from US$ 25.1 million (Rs 1,152.7 million)
-- Down 10.5% (3.7% excluding onetime charge) sequentially from US$ 32.4 million (Rs 1,313.5 million)

-- 40 basis points impact due to sequential Rupee appreciation

-- 130 basis points impact due to one time charge

-- Net Income for the quarter at US$ 27.6 million (Rs 1,097.8 million)
-- Up 23.9% (33.8% excluding onetime charge) YoY from US$ 22.3 million (Rs 1,023.8 million)
-- Down 16.8% (10.2% excluding onetime charge) sequentially from US$ 33.2 million (Rs 1,347.5 million)

-- Previous quarter saw higher fixed maturity treasury investments maturing during the quarter, resulting in a higher income.

-- One time charge due to Directors Severance USD 2.2 M (Rs. 87.5 million)

-- EPS for the quarter at US$ 0.20 per share( US$ 0.40 per ADS ) up 23.3% YoY

-- Stock based expense for the quarter at US$ 1.3 million as compared to US$ 1.1 million during previous quarter.

-- Acquired 31 new clients during the quarter. Number of active clients was 293 at quarter end as compared to 267 in Q2 2007.

Future Outlook:

Q4 2007 revenues are expected to be in the range of US$ 170 - 171 million and net income (excluding the foreign exchange gain/loss) is expected to be in the range of US$ 17.0- US$ 17.5 million at a constant $ value of Re. 39.8 per US $ for the quarter.

Management comments

Commenting on the Q3 2007 performance, Mr. Narendra K Patni, Chairman and CEO, Patni Computer Systems Ltd., said "We witnessed another quarter of good operational and financial performance. The acquisitions of Logan Orviss and Taratec were in line with our strategic intent of expanding our business coverage through inorganic means. Accordingly, we will continue to invest in businesses that are in line with our growth strategy. We brought in a new head of global HR as we intensify our efforts on nurturing and retaining the best pool of employable resources. Going forward, we aim to deliver strong growth in our operating and financial performance."

Commenting on the performance, Mr. Mrinal Sattawala, Chief Operating Officer, Patni, said, "Our client and service offering portfolio continue to strengthen. During the quarter we added 31 new clients taking our total number of active clients to 293. Our top five and top ten clients now contribute 35.6% and 48.5% of total revenues respectively. Our utilization improved considerably at 72.5% from 71.7% in the previous sequential quarter. On an overall basis, we are witnessing improved performance across our operating metrics which should reflect in better financial performance over the medium term"

Speaking on the occasion, Mr. Surjeet Singh, Chief Financial Officer, Patni, added, "Inorganic growth is key component of our growth strategy and we successfully completed two transactions in this quarter besides continued focus on operating parameters of our business . We will continue to make strategic investments in our business for broad based growth.

Corporate developments in Q3 2007

-- Completed the acquisition of Logan-Orviss International; a leading European based independent specialist telecommunications consulting services Company. This acquisition will strengthen Patni's capabilities in its communication and media practice enabling the Company to provide operational transformation in its consulting and global delivery. The consideration includes an upfront cash payment and performance linked incentive payments on achieving a financial target over a three year period.

-- Acquired New Jersey based Life Sciences Services Company, Taratec for $27 million. Taratec is a leading consulting Company in the life sciences industry providing integrated business, information technology, and regulatory compliance products and services. This acquisition will enable Patni to gain complementary capabilities in integrated services, address requirements of the Life Sciences market, from pharmacovigilance to demand driven supply chains, and give access to a marquee client base.

-- Acquired an Intellectual Property(IP) from UK-based The Carphone Warehouse, an independent retailer of mobile phones and services, with over 2000 stores in ten countries. The IP enables communication service providers and mobile phone retailers to offer customer management, retail point of sale and billing services for a variety of products and services. This acquisition will allow Patni to use the IP for software licensing, provision of re-usable IP led IT services, managed services and the provision of hosted or Software-as-a-Service solution.

-- Signed a US$ 200 million multi year outsourcing deal with The Carphone Warehouse. As a part of the deal, Patni will provide integrated services in consulting, systems integration, application development and maintenance for the UK-based mobile phone retailer.

-- Appointed Mr. Rajesh Padmanabhan as Executive Vice-President to head the Company's Global Human Resources function. Mr. Padmanabhan has over 22 years of industry experience spanning IT, hospitality, financial services, and manufacturing industries.

Revenues

Revenues during the quarter were at US$ 169.5 million (Rs 6,735.7 million) representing sequential increase of 3.7% and 11.7% on YoY basis. 31 new clients were added during the quarter.

Gross Profit

Gross margins were at 30.9% as compared to 32.2% in Q2 CY2007. Margins were partially influenced by the following:

-- Rupee Appreciation ~ 40 basis points
-- Net period cost changes of 80 basis points

Gross profit on absolute basis in Q3 CY2007 at US$ 52.4 million (Rs 2,082.0 million) was lower by 0.5% sequentially and 1.4% YoY

Selling and Marketing Expenses

Overall sales and marketing costs were lower at 6.5% of sales, US$ 11.0 million (Rs. 436.8 million), as compared to $11.9 million (Rs. 481.4 million) or 7.3% in the previous quarter. The decrease is due to period cost change.

G&A expenses

Normalized G&A cost for the quarter in line with previous quarter. Overall G&A increased to 11.8% in Q3 CY2007 against 10.0% in Q2 CY2007 (US $20.1 million (Rs. 798.1 million) compared to US $ 16.4 million (Rs. 665.8 million) in the previous quarter) on account of one time severance fees paid to Directors (~130 basis points) and marginal accretion in this cost line on account of acquisition.

Foreign exchange gain/loss

The Foreign exchange gain for the quarter was US$ 7.5 million (Rs.296.4 million) on account of mark to market of forward contracts , revaluation of debtors and tax liabilities, as compared to a similar gain of US$ 8.6 million (Rs 347.8 million) in Q2 CY2007.

The quarter end rate for debtors revaluation was Rs 39.85. Outstanding contracts at the end of Q3 of about US$ 175 million contracted in the range of Rs. 41.87 to Rs. 46.44.

Operating income

Operating margin was at 17.1%, US$29.0 million (Rs 1,151.4 million) against 19.8%, US$ 32.4 million (Rs 1,313.5 million) for the previous quarter. This includes forex exchange gain on hedging.

Operating margins Ex-forex was at 12.7% ( 14% excluding one time charge ) compared to 14.6% in the previous sequential quarter.

Operating Income grew 15.5% on YoY basis as compared to $25.1 million (Rs 1,152.7 million) in the corresponding quarter last year. On Ex-forex basis Operating income declined by 18.4% driven largely by forex change duing the year

Other income

Other income (including interest and dividend income net of interest expenses, profit/loss on sale of investments and other miscellaneous income) was lower sequentially, in line with the estimates, at US$ 3.6 million (Rs 144.3 million) as compared to US $ 7.1 million (Rs 286.7 million) in the previous quarter due to higher amount of fixed maturity treasury investments that matured during the previous quarter.

Profit before tax

Profit before tax for the quarter was at US$ 32.6 million (Rs. 1,295.8 million) as compared to US$ 39.4 million (Rs. 1,600.2 million) during previous quarter.

Income taxes

Income tax for the quarter was at US$ 5.0 million (Rs 198.0 million) at 15.3% effective tax rate on profit before tax lower than the previous quarter effective tax rate of 15.8%.

Net income

Consequently, net income for the quarter was at US$ 27.6 million (Rs 1,097.8 million) ( US$ 29.8 excluding onetime charge) , as compared to Q2 CY2007 net income of US$ 33.2 million (Rs 1,347.5 million). Increased focus on margin improvement during previous few quarters resulted in a YoY increase in net income by 23.9% ( 33.8% excluding one time charge) as compared to corresponding quarter of last year.

EPS

EPS for the quarter was at US$ 0.20 and US$ 0.40 per ADS marginally lower than US$ 0.24 per share and US $ 0.48 per ADS. EPS increased by 23.3 % on YoY basis from $0.16 per share or $0.32 per ADS.

Balance Sheet and Cash Flow changes

During the quarter, against net income of US$ 27.6 million (Rs 1,097.8 million), cash from operating activities was at US$ 39.8 million (Rs 1,583.6) net of changes in current assets and liabilities of US$ 7.0 million and non cash charges of US$ 5.2 million. These non cash charges comprise of depreciation and amortization of US$ 7.7 million and other charges of US$ (-) 2.5 million.

Net Cash used in investing activities was at US$ 57.9 million (Rs 2,301.8 million) which include net capital expenditure of US$ 35.0 million (Rs 1,390.6 million), net investment in securities at US$ 1.7 million (Rs. 66.3 million) and investment in affiliates of US$21.3 million (Rs 844.8 million)

Net cash inflow used in financing activities was at US$ 1.2 million (Rs 48.6 million) comprising of proceeds from common shares issued of US$ 0.6 million (Rs. 25.6 million) and dividend on common shares of US$ 1.8 million (Rs. 69.9 million) and (-) 0.1 million (Rs. 4.3 million) on other financing activities.

Overall cash and cash equivalents (including short term investments) at the close of 30th Sep 2007 were at US$ 322.9 million (Rs 12,833.4 million), compared to US$ US$ 330.7 million (Rs 13,418.2 million) at the close of Q2 CY2007.

At the end of Q3 CY2007, receivables were at US$ 140.1 million (Rs 5,570.8 million) as compared to US$ 123.8 million (Rs 5,024.5 million) in the previous sequential quarter. Days outstanding for the current quarter were at 77 days as compared to 70 days in Q2 CY2007.

Important Notes to this release:

-Fiscal Year

Patni follows a January - December fiscal year. The current review covers the financial and operating performance of the Company for the third quarter ended 30th Sep 2007

-U.S. GAAP

A Consolidated Statement of Income in US GAAP is available on page 3 of the Fact Sheet attached to this release

-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.

-Attached Fact Sheet (Results & Analysis Tables)


About Patni Computer Systems Ltd:

About Patni

Patni Computer Systems Limited (BSE: PATNI COMPUT, NSE: PATNI, NYSE: PTI) is a global provider of IT Services and business solutions, servicing Global 2000 clients. Patni caters to its clients through its industry-focused practices, including insurance, financial services, manufacturing, telecommunications and media, and its technology-focused practices.

With an employee strength of over 12,000; multiple global development centers spread across 12 cities worldwide; 21 international offices across the Americas, Europe and Asia-Pacific; Patni has registered revenues of US$ 579 million for the year 2006.

Patni's service offerings include application development and maintenance, enterprise application solutions, product engineering services, infrastructure management services, business process outsourcing, quality assurance and engineering services.

Committed to quality, Patni adds value to its client's businesses through well-established and structured methodologies, tools and techniques. Patni is an ISO 9001: 2000 certified and SEI-CMMi Level 5 organization, assessed enterprise wide at P-CMM Level 3. In keeping with its focus on continuous process improvements, Patni adopts Six Sigma practices as an integral part of its quality and process frameworks.

For more information on Patni, visit www.patni.com.

IMPORTANT NOTE:
Certain statements in this release concerning our future growth prospects are forward-looking statements, which involve a number of risks, and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding fluctuations in earnings, our ability to manage growth, intense competition in IT services including those factors which may affect our cost advantage, wage increases in India, our ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, restrictions on immigration, our ability to manage our international operations, reduced demand for technology in our key focus areas, disruptions in telecommunication networks, liability for damages on our service contracts, the success of the companies in which Patni has made strategic investments, withdrawal of governmental fiscal incentives, political instability, legal restrictions on raising capital or acquiring companies outside India, and unauthorized use of our intellectual property and general economic conditions affecting our industry. The company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company.

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Press release

Source: Patni Computer Systems (Business Wire India)

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