Patni-iGate deal fairly priced: Antique Stock Broking

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Patni-iGate deal fairly priced: Antique Stock Broking

Sandip Kumar Agarwal, IT Analyst with Antique Stock Broking says that the much talked about Patni-iGate deal looks good and fairly priced at Rs 550. Speaking on the mid-cap and small-cap IT stocks, he sees constraints going forward on the supply side. He is overweight Patni at current levels and also Persistent.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

In an exclusive interview with CNBC-TV18, Sandip Kumar Agarwal, IT Analyst with Antique Stock Broking says that the much talked about Patni Computers and iGate deal looks good and fairly priced at Rs 550. Speaking on the mid-cap and small-cap IT stocks, he sees constraints going forward on the supply side. He is overweight on Patni Computers at current levels, and also on Persistent .

"A be lot of possible synergies can be seen. Since iGate is US-based, the pricing is good. There will be some hiccups initially in integration and some clients might go but we will not loose substantial amount of clients on that part," he further added.

Below is a verbatim transcript of the interview with CNBC-TV18's Latha Venkatesh and Soniya Shenoy. Also watch the accompanying video.

Q: There are lot of numbers floating around terms in of the potential price and a 20% non-compete fee that the Patni promoters are seeking. Would a buyer like i-Gate be paying too much of this is the price?

A: At Rs 550, which we are thinking the price would be, excluding non-compete fee it will be at 10 times of the CY11 earnings of Patni, which is reasonably priced. Now, non-compete fee, will be difficult to comment because it is outside our ambit and will be difficult to comment on. However, as far as at Rs 550, which we are hearing in the market, to that extent it looks fairly priced, because it is almost 10 or 11 times of FY11 earnings.

Q: What is the view then on the Patni computer stock? When we speak to lot of analysts or investors who hold the stock, they are of the opinion that going forward Patni vis-à-vis other IT players may not be able to translate the kind of increase in client spends, additions, etc. What is your take on the stock and what is the call now?

A: We believe that if this takeover would have been done by private player, then they would have lost many clients and client additions would have been a problem. But since the operational company like iGate, whose front end is in US; takes over then probably front end is good and again backend from execution side of Patni's will be good. Therefore, it will be a very good integration. A be lot of possible synergies can be seen. Also since iGate is US-based, the pricing is good. So to that extent initially there will be some hiccups in integration and some clients might go but we don't think that we will loose substantial amount of clients on that part.

Q: One is not aware of how employee integrations happen in cases like this. But you don't foresee any problems. If indeed it is an iGate kind of buyout, you would think that the employee integration will be smooth?

A: As I said, there can be some hiccups initially. iGate was ranked as one of the best employers. Therefore, as far as employee integration or employees leaving the company is concerned, if iGate takes over we don't think that will happen. Employees will be sticking to the company. Hence, employee integration should not be that big a problem.

Q: Apart from Patni, you tracked the entire IT sector very closely. We have seen lot of these midcap IT companies do well. What are your picks in that space? If you could tell us with the couple of stocks you have a call on perhaps?

A: In the midcap space, first of all Patni at current levels is good, Persistent is also good. In slightly small midcap or small cap, CMC looks good. Primarily, we are only worried about the supply side problem which is there. Because top 3 players obviously has an edge when it comes to recruitment. They have lot of opportunities for example they can offer slightly higher pay and also the onsite offsite ratio is also good. But this is a problem with midcap and smallcap, therefore, obviously the supply side constraint is something which can be a problem going forward. Hence, it can lead to higher employee cost and little compacting of margins. As far as largecap is concerned, we believe that largecap should not have this kind problem although supply is a problem for all the companies, but they will have compared to it lesser problem.

Q: Have you upped your earning estimates in any of the largecaps? Most of them will start kicking in their results in perhaps 10 days from now. Have you upped any of their estimates given the way the rupee has depreciated and given the way that there seems to be a recovery in the US?

A: No. We have not upped our estimates on any of the companies as of now. We will wait for this quarter results and we will see how it comes.