Patni likely to merge with iGate by 2012: Phaneesh Murthy

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Patni likely to merge with iGate by 2012: Phaneesh Murthy

iGate may be all set to merge Patni with itself, if its delisting process comes through. That’s the word from Phaneesh Murthy. In an exclusive conversation with CNBC-TV18, Murthy said that he was confident that US clients will increase budgets, a complete contradiction from what the rest of the industry said.

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iGate may be all set to merge Patni with itself, if its delisting process comes through. In an exclusive conversation with CNBC-TV18, Phaneesh Murthy, CEO, iGate-Patni said that he was confident that US clients will increase budgets, a complete contradiction from what the rest of the industry said.

Murthy said, "The delivery integration is what is underway right now and that will take a fair amount of time, I think it will go on till the end of next year, say Dec 2012 and we are intentionally taking it a little slow."

Murthy informed that postal ballot for delisting is likely to be completed by the first week, however, pricing may be an issue. On the hindsight, if the delisting does not get through iGate's stake is likely to be brought down to 74%. The company may also do away with the brand 'Patni'.

"Right now we are in the process of what we call the postal ballot. The postal ballot by first week of January we will have results of the postal ballot in and generally we expect that to go relatively smoothly and then let's say a few more weeks for the listing NSE, BSE approvals to come from all regulatory agencies and after that we will be able to launch the offer," he added.

It is aiming to bring down debt within five to six years. Murthy elaborated that the bonds are structured in such a way that the company can get a bullet payment at the end of five years or may be refinanced. "So the idea was not to have to pay every quarter but to retain some flexibility so we think that based on all cash flows and so on we think in a period of five to six years years we will be able to write down the complete debt," he added.

Divulging more details, Murthy explained USD 50-60 million is likely to be pumped on physical infrastructure expansion in multiple cities, Bangalore, Pune, Mumbai and Chennai.

"We have no intentions to sell any of our facilities because as we grow we are actually going to continue to build out. In 2012-13 I will be investing roughly about USD 50-60 million on physical infrastructure expansion in multiple cities, Bangalore. In Pune, we are going to do a fairly large training centre where we can do entry level training. In Mumbai we will continue to expand dramatically, also in Chennai we are going to expand. So if you look at these three to four cities in two years we will be doing USD 50-60 dollars of capex which is fairly large and we will probably be adding about a million sq ft of space," he elaborated.

Below is the edited transcript of Murthy's interview with CNBC-TV18. Also watch the accompanying videos.

Q: There has been a lot of restructuring and integration; you have been busy in the last one year. Tell us what's the status right now in terms of integrating both the companies?

 A: The integration work has largely gone quite well. We took a slightly different approach to the integration; we integrated the front end first. We took the sales and marketing, all the go to market pieces, account management and integrated that team right away. So, that way the idea was that the customers would get benefit of the combine story, the billion dollar play, references of both companies and the case studies for both the companies.

We closed the transaction in May and completed this piece of the integration by August, within the first three months. Then we started the back office integration. There the idea was to get more efficiency out of the system and squeeze out certain costs. We had made a commitment to the market place that we will try and get USD 20-30 million of costs out per year. We have reached now a level of about USD 28 million of cost savings per year. 

The delivery integration itself is what is underway right now. That will take a fair amount of time; it will go on till the end of next year, Dec 2012. We are intentionally taking it a little slow because it's a lot of cultural integration, 22-23,000 employees are starting to feel a little different. So it is going to be a little slow.

 Q: How long will the entire integration process take?

 A: We will be done completely by about December 2012, which is about 18 months. We are working on merging about 26-27,000 employees that's a relatively fast pace integration.