Patni achieved revenue of USD183mn (2.4%QoQ), in-line with expectation (PINCe USD182.4mn). The operating margin declined 160bpsQoQ due to lower utilisation. Huge forex gain of USD8.1mn and tax reversal of USD7.5mn led to higher than expected PAT of USD39.4mn.

Revenue in-line with expectation

Revenue grew ~3%QoQ to Rs8,200mn. EBITDA margin dipped ~160bpsQoQ to 16.1%. EPS stood at Rs13.1 (37%QoQ increase, 7.4%YoY decline). CY10 revenue grew 7%YoY to USD701.7mn. Q4CY10 USD revenue growth was lower than its large peers who grew 5.5-7.5%QoQ and also lower than mid-tier peers.

Insurance, manufacturing and retail outperform

Major verticals viz. Insurance (31.3% contribution) and manufacturing & retail (30.6% contribution) grew 4.7%QoQ and 5.5%QoQ, respectively. Financial services lagged with 2.4%QoQ growth and communication & media declined 10.6%QoQ.

BPO surged but IMS and PI declined

BPO grew 23.6%QoQ mainly due to CHCS incremental revenue but surprising IMS and PI declined 7.1%QoQ and 2.7%QoQ, whereas peers showed good traction in these service lines.

US leads the growth, APAC and EMEA slump

APAC declined 11.7% after a strong growth in Q3CY10, EMEA declined 2%QoQ. US led the growth with 4.3%QoQ which included revenue ramp up from CHCS deal.

Net addition of 1,086 employees; top client grew 6%QoQ but smaller clients dragged (non-top 10 clients grew 1.8%QoQ) Added net employees of 3,647 in CY10. The attrition rate declined marginally by 70bpsQoQ to 25.2%. Added 19 new clients in the quarter to reach 297 active clients.

Outlook- Revenue was in-line but EBITDA margin dipped vs. our expectation. Full year USD revenue growth for CY10 was just 7%YoY in an improved demand environment where peers were growing at a much faster rate. There is no guidance for the next quarter's revenue and profit against their regular practice. We expect new management control will help to increase growth rates to become closer to industry average. We maintain `HOLD' recommendation on the stock with a target price of Rs480.