Patni Momentum Slowing Down

Patni Computer Systems (PTI - Analyst Report) reported in-line revenues but much lower-than-expected earnings in the first quarter of 2008 due to lower gross margin as well as foreign exchange losses. The company benefited from a lower-than-expected effective tax rate in the quarter.

We are maintaining our revenue and earnings estimates for the rest of 2008 and believe that the company has significant execution risks going forward, although it may be helped by a depreciating rupee. Lackluster guidance, margin pressures and possibility of a consumer-driven recession in U.S.A. imply subdued business momentum.

We believe that in the absence of a near-term catalyst, there is not much upside to the stock for the first half of 2008, and continue to rate PTI a Hold. We have set a target price of $14.00 or 10.07x our 2008 earnings estimate of $1.39 per ADR.

Udayan Mukherjee contributed to this report.

Read the full analyst report on PTI.