Patni specializes in developing bespoke enterprise application integration, network and systems management and embedded systems for Western clients and will offer 18.7 million shares at a price band of between INR 200 ($4.41) to INR 230 (5.07) per share, which will raise between $82m and $95m.
The sale represents 15% of the capital of the company, and will dilute the ownership stakes of the company’s founders from 60% to 51%.
The IPO will be sold through a book building route, in which bids are collected from investors at various prices, which are above or equal to the lower offer price. The offer/issue price is then determined after the bid closing date based on certain evaluation criteria.
There are fears that a general cooling of interest from foreign institutional investors in the Indian markets will negatively impact the high numbers of IPOs scheduled for the first quarter of 2004.
Uday Kotak, CEO of investment bankers Kotak Mahindra, who are lead writers of Patni’s IPO along with DSP Merrill Lynch, is naturally touting a more optimistic line: The market is deep enough and I am optimistic. All these issues will comfortably sail though if properly distributed and marketed.
Patni is the sixth largest and one of the oldest IT companies in India, and claims the IPO will primarily be used to build its brand. The IPO is to help us build our brand image. You’ll see us in technology seminars and in the media quite often, chairman and CEO Narendra Patni said.
As well as brand building, the company is expected to use the extra funds to finance its acquisition strategy. In May last year it acquired Boston, Massachusetts-based consulting firm The Reference Inc for around $10m to spearhead its business with US financial services companies.
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As well as its six offshore centers in India, the company has locations in the US, Germany and the UK, and it is setting up a near-shore center in Canada to offer disaster recovery services to its North American clients. Some 89% of Patni’s revenues are generated from US clients, with only 7% generated in from Europe, so increasing its front end in Europe is a key strategic aim. It has set up a team to explore acquisitions to expand its presence in the UK, Germany, Sweden and France.
Other than the US, the company also has a dependency on its projects with General Electric, who accounts for 42% of revenues and from which Patni badly needs to diversify.
Patni’s financials are fairly solid, though. The company has grown revenue from $63m for the full year 1999 to $188m in 2002, with the nine months to the end of September 2003 bringing in $182m.
The December quarter is expected to be in line with previous quarters, continuing a steady growth rate. Operating margins slipped in the company’s September quarter due to increased labor costs, but it is believed these will stabilize at between 15% and 17%.
This article is based on material originally published by ComputerWire
