Patni in Japan joint venture

Patni Computer Systems is looking to form a joint venture with a Japanese company to strengthen business in that country.

“We are finalising the modalities for a joint venture in Japan,” Jeya Kumar, CEO of Patni, said answering analyst calls discussing the firm’s first quarter (January-March) results for fiscal 2010.

The company, which recently won a $200 million deal from the US insurance firm Universal American, is seeing growth momentum picking up in Asia Pacific region, which grew by 25% in the first quarter. “The revenue base is small in APAC but we expect more conversions in this region. We see softness in Europe,” said Sujit Singh, CFO of Patni.

Besides the insurance deal, in which the firm acquired CHCS Services, a subsidiary of Universal American with technologies in the healthcare insurance segment, for less than $10 million, Patni is likely to close another very large deal soon.

The company, however, could not share much information on the contract.

It earned $172.3 million (Rs 774.5 crore) in revenue in the first quarter showing a sequential jump of 1.3%. However, the profit slid 17.7% sequentially to $33.3 million (Rs 149.7 crore) from $40.5 million (Rs 187.8 crore) in the previous quarter.

The company plans to hire about 3,000 professionals of which 1,000 lateral hires are about to join the firm.

Meanwhile, the firm is on the lookout for larger acquisitions in the range of $30-200 million. “We are looking at US, Europe and APAC regions for acquisitions. The criteria for that will include high gross margin, synergy amongst others,” said Kumar.

At the end of first quarter the company had a cash and cash equivalent of $467.3 million (Rs 2,100.6 crore).

While revenue from manufacturing sector for Patni grew by 2.9% in the quarter, that from the insurance, which earns maximum revenue for the firm, has shown degrowth of 3.7%. The company termed the degrowth in insurance sector revenue as an aberration for the first quarter.

Among other worries for Patni is a high rate of attrition which at 17.7% was the highest among most top IT firms. The attrition is mostly in the mid-level employees with above 3 year work experience, according to Kumar. Meanwhile, the firm has announced a wage hike of 12% for offshore and 3% for onsite employees. 

Analysts feel the company’s prospective business wins should fire on time and the firm’s progress is being closely watched.
“The firm’s announcements like the upcoming JV in Japan, a large deal in the pipeline and geography businesses like those in Europe should take off fast. We are closely watching Patni,” said a analyst tracking the firm.