iGate deal -- opportunity or challenge for Patni?

Shares of Patni Computer Systems have lost 13 percent of their value in the past six months, underperforming the IT index, as the firm has been growing at a much slower rate than its peers.

Mumbai: Shares of Patni Computer Systems have lost 13 percent of their value in the past six months, underperforming the IT index, as the firm has been growing at a much slower rate than its peers.

Patni's promoters recently sold a majority stake in the company to software firm iGate, backed by private equity firm Apax Partners, for $1.2 billion or 503.50 rupees a share, bringing to close a 3-year hunt.

While the deal could help Patni secure larger contracts, the integration remains a challenge as iGate, which reported fourth-quarter revenue of $81 million, attempts to merge with a company nearly double in revenue.

Among the analysts who follow the stock, 10 rate Patni "buy" or "strong buy," 10 rate it "hold" and eight have a "sell" or "strong sell" rating, according to Starmine.

Are the prospects of a bigger company reason enough to hold on to Patni's stock or is the integration challenge a cue to sell?

"Pricing of the deal was a dampener. Everybody was expecting the deal to happen at around 525-550 rupees," said Rajiv Mehta, assistant vice president, reseach at IIFL.

If there is management attrition at Patni, then integration will be painful and will delay the process, Mehta added.

Analysts were concerned on the cash position in Patni being taken over to repay iGate's debt.

"iGate is heavily leveraged. Patni is sitting on cash. Now, there could be loans and advances that could go to iGate books once the transaction gets completed," an analyst at a brokerage with a "sell" rating on the stock, said.

"The comfort in the cash position I had as a Patni shareholder is not there anymore," he added.

"The talk of selling the promoters' stake was on for almost three years now and clients had got very, very jittery," Elara Capital analyst Pralay Das said.

Bureau Report

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