Patni Computer Systems Limited (Patni) today announced its financial results for the fourth quarter and year ended 31^st December 2006.

Management comments

Commenting on the Q4 2006 performance, Mr. Narendra K Patni, Chairman and CEO, Patni Computer Systems Ltd., said, “I am pleased to report a robust performance for the year on the back of higher operating efficiencies. This highlights our ability to deliver sustained growth by focusing on improving internal operations while increasing our reach to customers worldwide.

During the year we also realigned our management team with an aim to achieve greater focus and foster all round accountability. In line with our growth vision we recently commissioned our new facility in Mumbai. We believe this will enable us escalate our business across newer verticals and service lines.

Overall, we remain confident about our business momentum and continue to further expand the focus on improving internal efficiencies to deliver margin expansions.”

Commenting on the performance, Mr. Mrinal Sattawala, Chief Operating Officer, Patni, said, “During CY 2006 we reduced dependence on our top 10 clients resulting in further diversification of our revenue streams, a key focus area for us. For the quarter under review we have added 22 new clients, bringing our tally of active clients to 239. Going forward, we expect to continue to our growth drive through leveraging our operating efficiencies.”

Speaking on the occasion, Mr. Surjeet Singh, Chief Financial Officer, Patni, added, “During the quarter ended December 2006 revenues were marginally ahead of the guidance and operating margins improved with efficiency gains absorbing the Rupee appreciation impact. We shall continue to manage our cost base optimally as we move into 2007 and deliver profitable growth through a growing number of clients and service lines.”   

 Revenues

Revenues during the quarter were marginally ahead of expectations at US$ 154.3 million (Rs 6,804.9 million) representing sequential increase of 1.7%.

For the year ended December 2006 the overall revenues were at US$ 578.9 million (Rs 25,533.1 million) growing by 28.5% from the previous year.

Gross profit

Gross profit for the quarter was marginally higher at US$ 54.8 million (Rs 2,417.7 million) against US$ 54.1 million (Rs 2,485.5 million) in previous quarter. After absorbing the net adverse impact of about 1% due to rupee appreciation during the quarter, gross margins were at 35.5% as compared to 35.7% in Q3 CY 2006.

Gross profit for 2006 was at US$ 208.7 million (Rs. 9,204.8 million) (US$ 201.6 million (Rs. 8,892.5 million) without additional provisions) as compared to US$ 161.9 million (Rs. 7,275.2 million) in 2005, an increase of 28.9%. Gross profit without such additional provisions increased by 24.6% for the year. Overall Gross margins improved marginally at 36.1% in 2006 as compared to 35.9% in the pervious year.

Selling and Marketing Expenses

Sales and marketing expenses during the quarter were at US$ 11.0 million (Rs. 485.0 million), unchanged as compared to previous quarter and as percentage of revenues were at 7.1%.

On a full year basis sales and marketing expenses were at US$ 43.1 million (Rs. 1,900.7 million) from US$ 36.1 million (Rs. 1,620.8 million). Sales and marketing expenses as percentage of revenues were marginally lower at 7.4% than spend of 2005 at 8.0% as a result of absorption benefits and productivity improvements.

G&A expenses

G&A cost optimization continued from previous quarter with marginal reduction in  overall spend by US$ 0.6  million from US$ 16.2 million (Rs 743.7 million) in Q3 2006 to US$ 15.6 million (Rs 687.7 million) in Q4 2006. Overall spend as percentage of revenues reduced to 10.1% in Q4 2006 from 10.7% in Q3 2006

Overall G&A costs for the year were marginally lower at 11.6%  (US$ 67.2 million) as compared to 12.0% in 2005 (US$ 53.8 million). Focus on G&A costs rationalization and optimization during second half of 2006 helped the overall containment of absolute increase of G&A costs.

Provision for doubtful debts

During the quarter, provision for doubtful debts was in line with the previous quarter at US$ 0.4 million (Rs. 16.6 million). For full year this provision was at US$ 1.2 million (Rs. 52.5 million), higher as compared to US$ (-) 0.2 million (Rs. (-) 6.8 million) in 2005.

Foreign exchange gain/loss

The quarter end rate for debtors revaluation was Rs 44.29.  Mark to market impact of forex contracts taken earlier and revaluation of debtors at the quarter end, resulted in foreign exchange loss of US$ 0.6 million (Rs 26.0 million) for the quarter as compared to a similar foreign exchange loss of US$ 1.3 million(Rs 58.0 million) in Q3 2006. At the end of Q4 CY 2006 we have forex contracts worth US$ 202.0 million in the range of Rs. 44.70 to Rs. 46.85.

Operating income

As a result of net operating gains on SG&A and forex gain/loss change, the operating income was higher by 8.7% at US$ 27.3 million (Rs 1,202.3 million) as compared to US$ 25.1 million (Rs. 1,152.7 million).  Operating margins were at 17.7% from 16.5% in the previous sequential quarter.

Overall operating income for 2006 was at US$ 94.5 million (Rs. 4,167.2 million). However the operating income without additional provisions was at US$ 87.4 million (Rs. 3,855.0 million) increased by 24.1% as compared to US$ 70.4 million (Rs. 3,165.8 million) during 2005 and operating margins for the year stood at 15.1%.

Other income

For Q4 2006, other income (including interest and dividend income net of interest expenses, profit/loss on sale of investments and other miscellaneous income) stood at US$ 4.5 million (Rs 197.8 million). There is a one time credit in this income of US$ 1.7 million on account of one time reversal of interest on tax provisions. On a normalized basis other income remains in line with previous quarter at US$ 2.8 million .

For the year total other income was higher at US$ 12.5 million (Rs 550.0 million) as compared to US$ 4.2 million (Rs 190.6 million) in 2005 due to increased interest and dividend income on investments.

Profit before tax

Profit before tax for the quarter was consequently higher by 13.2% at US$ 31.7 million (Rs. 1,400.1 million) as compared to US$ 28.0 million (Rs. 1,288.1 million) during previous quarter.

On a full year basis reported PBT was at US$ 106.9 million (Rs. 4,717.2 million). PBT adjusted for additional provisions  was at 17.2% as compared to 16.6% in 2005. PBT without additional provisions was at US$ 99.8 million (Rs. 4,400.4  million), higher by 33.6% as compared to US$ 74.7 million (Rs. 3,356.4 million) in 2005.

Income taxes

Income tax for the quarter was at US$ 6.0 million (Rs 265.2 million) at an 18.9% effective tax rate on profit before tax . For the full year overall tax was at US$ 47.7 million (Rs 2,103.7 million). However without additional provision the overall tax was at US$ 20.6 million (Rs 908.9 million). The effective tax rate excluding additional provision was 20.7% in 2006 as compared to 18.5% in 2005.

Net income

Consequently, net income for the quarter was at US$ 25.7 million (Rs 1,134.9 million), an increase  of 15.5% as compared to Q3 CY 2006 net income of US$ 22.3 million (Rs 1,023.8 million).

For the full year reported net income was at US$ 59.3 million (Rs 2,613.6 million). However, net income after excluding additional provisions was at US$ 79.2 million (Rs 3,491.4 million) 30.0% higher than US$ 60.9 million (Rs 2,736.0 million) in 2005.

EPS

EPS was at US$ 0.19 (Rs 8.21) and US$ 0.37 per ADS for the quarter.

Reported EPS for the year was at US$ 0.43 (Rs 18.94) and US$ 0.86 per ADS. However after adjusting for additional provisions, for the full year EPS was at US$ 0.57 (Rs. 25.31and US$ 1.15 per ADS) as compared to US$ 0.48 (Rs.21.76 and US$ 0.97 per ADS) in 2005. At the end of 31^st December 2006, fully diluted outstanding shares were at 138.9 million.

Balance Sheet and Cash Flow changes

During the quarter, against net income of US$ 25.7 million (Rs 1,134.9 million), cash from operating activities was at US$ 31.9 million (Rs 1,406.0) net of changes in current assets and liabilities of US$ 2.1 million and non cash charges of US$ 4.1 million. These non cash charges comprise of depreciation and amortization of US$ 5.7 million, deferred taxes of US$ (-) 3.0 million, and other charges including stock option cost of US$ 1.4 million .  

Net Cash used in investing activities was US$ 34.8 million (Rs 1,536.3) including capital expenditure of US$ 12.7 million (Rs 561.6 million),investment in securities of US$ 10.6 million (Rs. 466.4 million) and payment of acquisition related liabilities of US$ 11.5 million (Rs. 508.3 million) 

Net cash inflow on financing activities was US$ 1.1 million (Rs 50.0 million) comprising of proceeds from common shares issued. With these changes and including revaluation of investments overall cash and cash equivalents (including short term investments) were at US$ 289.5 million (Rs 12,768.9 million), compared to US$ 270.1 million (Rs 12,413.3 million) at close of Q3 2006.

Receivables at the end of the Q4 2006 were at US$ 115.6 million (Rs 5,099.9 million) as compared to previous quarter at $ 108.4 million (Rs 4,981.6 million) representing  a small increase in number of days outstanding to 71 days from 67 days. However when seen in conjunction with unbilled receivables there is no change in overall position of days sale outstanding.

Sourced From: Text 100 Public Relations Consultancy