Patni's Q2 2007 Revenues up 14.2% YoY at $163.3 million (Rs. 6,628.1 million), Net Income up 98.9% at $33.2 million (Rs. 1,347.5 million)

Patni Computer Systems Limited (Patni) today announced its financial results for the second quarter ended 30th June 2007.

Performance Highlights

Important note:

As stated in our Q2 2006 release, prior years' tax review by the IRS and a review by the Department of Labor of Patni's US operations had resulted in additional provisions which led to an increase in gross profit and operating income by approximately US$ 7.0 million and decrease in net income by US$ 19.9 million for Q2 2006. Variations in Patni's Q2 2006 financial performance as a result of these reviews had been referred to as 'additional provisions' in the said press release. Financial Performance for Q2 2006 excluding these additional provisions has been considered for comparative performance review with Q2 2007 in this release.

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Performance Highlights for the quarter ended June 30th 2007

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-- Revenues for the quarter at US$ 163.3 million (Rs. 6,628.1 million)

-- Up 4.7% sequentially from US$ 156.0 million (Rs. 6,724.0 million)

-- Up 14.2% YoY from US$ 143.0 million (Rs 6,560.7 million)

-- Operating Income for the quarter at US$ 32.4 million (Rs. 1,313.5 million)

-- Up 6.8% sequentially from US$ 30.3 million (Rs. 1,306.0 million)

-- Rupee Appreciation impact of -200 basis points.

-- Compensation increase impact of -260 basis points

-- Up 87.5% YoY from US$ 17.3 million (Rs. 792.0 million)

-- Net Income for the quarter at US$ 33.2 million (Rs. 1,347.5 million)

-- Up 19.2% sequentially from US$ 27.8 million (Rs. 1,200.3 million)

-- Up 98.9% YoY from US$ 16.7 million (Rs. 766.0 million)

-- EPS for the quarter at US$ 0.24 per share (US$ 0.48 per ADS) up 19.0% sequentially and 97.8% YoY

-- Stock based expense for the quarter was US$ 1.1 million as compared to US$ 1.0 million during previous quarter.

-- Top Customer contribution towards revenue decreased to 10.7% during the quarter from 11.1% in Q1 2007. Revenue concentration of Top 10 clients also reduced to 46.9% from 48.8% in the previous quarter.

-- Acquired 25 new clients during the quarter. Number of active clients was 267 at quarter end as compared to 252 in Q1 2007.

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Future Outlook:

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Q3 2007 revenues are expected to be in the range of US$ 167 - 168 million and net income (excluding the foreign exchange gain/loss) is expected to be in the range of US$ 18.5- US$ 19.0 million at a constant $ value of Re. 40.8 per US$ for the quarter.

Management comments

Commenting on the Q2 2007 performance, Mr. Narendra K Patni, Chairman and CEO, Patni Computer Systems Ltd., said "We continue to invest in our business to strengthen our long term prospects. We are focusing heavily in Europe in line with our strategy and have strengthened the leadership team and also made inorganic investment in the region. We are confidently optimistic about the future and are committed to enhancing all round stake-holder value."

Commenting on the performance, Mr. Mrinal Sattawala, Chief Operating Officer, Patni, said, "Our client and service offering profiles have strengthened over the last quarter. During the quarter we not only added 25 new clients but also reduced dependence on the Top 5 and Top 10 clients. Inorganic assets acquired recently are being integrated to drive synergy benefits faster."

Speaking on the occasion, Mr. Surjeet Singh, Chief Financial Officer, Patni, added, "Timely and effective hedging of our foreign currency exposures enabled us to neutralize the negative foreign exchange effect for the quarter besides overall control of operating metrics and costs. We continue to make organic and inorganic investments in our business for long term profitable growth."

Management Discussion & Analysis of Performance
(Figures in Million US$ except EPS and Share Data)
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CONSOLIDATED STATEMENT OF INCOME
For the quarter / period ended
Particulars	Jun 30 2007		Mar 31 2007	QoQ Change %	Jun 30 2006		2006		Additional Provision in 2006	2006 (Excluding additional provisions)		Jun 30 2006 (Excluding additional provisions)
Revenue	163.3		156.0	4.7%	143.0		578.9		-	578.9		143.0
Cost of revenues	106.0		97.5	8.7%	86.8		359.8		-7.0 1	366.9		93.9
Depreciation	4.4		3.8	14.3%	3.2		13.2		-	13.2		3.2
Gross Profit	52.9		54.7	-3.2%	53.0		205.8		7.0 1	198.8		45.9
Sales and marketing expenses	11.9		11.2	5.5%	11.0		43.1		-	43.1		11.0
General and administrative expenses	16.7		15.1	10.6%	17.6		64.3		-	64.3		17.6
Provision for doubtful debts and advances	0.6		0.6	-10.8%	0.2		1.2		-	1.2		0.2
Foreign exchange (gain) / loss, net	(8.6)		(2.6)	225.9%	(0.1)		2.7		Â	2.7		(0.1)
Operating income	32.4		30.3	6.8%	24.3		94.5		7.0 1	87.4		17.3
Other income / (expense), net	7.1		3.6	97.3%	3.9		12.5		0.2	12.4		3.8
Income before income taxes	39.4		33.9	16.4%	28.3		106.9		7.2 2	99.8		21.1
Income taxes	6.2		6.0	3.2%	31.5		47.7		27.1	20.6		4.4
Net income/(loss)	33.2		27.8	19.2%	(3.2)		59.3		- 19.9 3	79.2		16.7
Earning per share	Â		Â	Â	Â		Â		Â	Â		Â
- Basic	$ 0.24		$ 0.20	Â	$ (0.02)		$ 0.43		Â	$ 0.57		$ 0.12
- Diluted	$ 0.24		$ 0.20	Â	$ (0.02)		$ 0.43		Â	$ 0.57		$ 0.12
Weighted average number of common shares used in computing earnings per share	Â				Â		Â		Â	Â		Â
- Basic	138,646,132		138,342,512	Â	137,889,376		137,957,477		Â	137,957,477		137,889,376
- Diluted	139,978,442		139,413,330	Â	137,889,376		138,904,860		Â	138,904,860		137,889,376
												Â
Prior years' tax review by IRS and the Department of Labor Review by Patni's US Operations has resulted in the net reversals of additional provisions leading to an increase in Q2 2006 Gross Profit and Operating Income and a decrease in Q2 2006 Net Income.
												Â
1 - due to reversal of payroll taxes for earlier years, net of accrual from DOL review
2 - impact of 1, net of write-back of interest/penalty for earlier years
3 - impact of re-assessed corporate taxes for earlier years, net of 2

Revenues

Revenues during the quarter were in line with expectations at US$ 163.3 million (Rs. 6,628.1 million) representing sequential increase of 4.7% and 14.2% on YoY basis. 25 new clients were added during the quarter.

Gross profit

Gross margins were at 32.4% as compared to 35.0% in Q1 2007 due to the following

• Rupee appreciation impact of ~200 basis points.
• Annual wage increase impact of ~260 basis points
• Positive impact due to period costs reduction of ~180 basis points largely due to visa costs
• Other efficiency gains of around 20 basis points.

Gross Margins in Q2 07 at US$ 52.9 million (Rs. 2,148.4 million) were lower by 3.2% sequentially and increased by 15.3% on YoY basis.

Selling and Marketing Expenses

Overall sales and marketing costs were stable at 7.2% of sales with marginal absolute increase to US$ 11.9 million (Rs. 481.4 million), as compared to $11.2 million (Rs. 484.6 million) in the previous quarter.

G&A expenses

Overall G&A increase to 10.2% against 9.7% to US $16.7 million (Rs. 678.1 million) compared to US$ 15.1 million (Rs. 651.2 million) in the previous quarter on account of increase in people costs due to compensation increase and forex impact.

Foreign exchange gain/loss

The Foreign exchange gain for the quarter was US$ 8.6 million (Rs. 347.9 million) on account of mark to market of forex contracts, revaluation of debtors and tax liabilities, as compared to a similar gain of US$ 2.6 million (Rs. 113.4 million) in Q1 2007.

The quarter end rate for debtors revaluation was Rs. 40.72. At the end of Q2 2007, we had outstanding contracts of about US$ 211 million taken in the range of Rs. 41.07 to Rs. 46.44.

Operating income

Net of Gross margin and SG&A cost changes and foreign exchange gain, Operating income including foreign exchange gain on hedging was higher at 19.8% at $32.4 million (Rs. 1,313.5 million) against 19.4% or $30.3 million (Rs. 1,306.0 million) in Q1 2007. Without hedging gain /loss the operating margins declined sequentially from 17.7% to 14.6% . Operating Income grew 87.5% on YoY basis as compared to $17.3 million (Rs. 792.0 million) in corresponding quarter of previous year (after adjusting for additional provisions) and grew by 38.6% excluding foreign exchange (gain)/loss on like to like basis.

Other income

Other income (including interest and dividend income net of interest expenses, profit/loss on sale of investments and other miscellaneous income) was higher at US$ 7.1 million (Rs. 286.7 million) as compared to US$ 3.6 million (Rs. 154.4 million) in the previous quarter. This is on account of higher amount of fixed maturity treasury investments maturing during the quarter per estimates.

Profit before tax

Profit before tax for the quarter was consequently higher by 16.4% at US$ 39.4 million (Rs. 1,600.2 million) as compared to US$ 33.9 million (Rs. 1,460.3 million) during previous quarter.

Income taxes

Income tax for the quarter was at US$ 6.2 million (Rs. 252.7 million) at 15.8% effective tax rate on profit before tax lower than the previous quarter rate of 17.8%. Part of the reduction in Effective Tax rate sequentially is due to higher component of other income during the quarter.

Net income

Consequently, net income for the quarter was at US$ 33.2 million (Rs. 1,347.5 million), an increase of 19.2% as compared to Q1 2007 net income of US$ 27.8 million (Rs. 1,200.3 million). Increased focus on margin improvement during previous few quarters resulted in YoY increase of Net Income at 98.9% as compared to corresponding quarter of previous year after adjusting it for additional provisions.

EPS

EPS for the quarter was at US$ 0.24 and US$ 0.48 per ADS marginally higher than US$ 0.20 per share and US$ 0.40 per ADS. EPS increased by 97.8% on YoY basis from $0.12 per share or $0.24 per ADS after adjusting it for additional provisions.

Balance Sheet and Cash Flow changes

During the quarter, against net income of US$ 33.2 million (Rs. 1,347.5 million), cash from operating activities was at US$ 36.2 million (Rs. 1,467.9) net of changes in current assets and liabilities of US$ 2.0 million and non cash charges of US$ 1.0 million. These non cash charges comprise of depreciation and amortization of US$ 7.3 million and other charges of US$ (-)6.3 million.

Net Cash used in investing activities was at US$ 9.4 million (Rs. 381.7 million) which include net capital expenditure of US$ 18.5 million (Rs. 750.1 million) and net investment in securities at US$ 9.1 million (Rs. 368.4 million).

Net cash inflow used in financing activities was at US$ 10.1 million (Rs. 408.4 million) consisting of proceeds from common shares issued of US$ 0.2 million (Rs. 9.1 million) and dividend on common shares of US$ 10.2 (Rs. 412.8 million) and 0.1 million (Rs. 4.6 million) on other financing activities.

Overall cash and cash equivalents (including short term investments) at the close of 30^th June 2007 were at US$ 330.7 million (Rs. 13,418.2 million), compared to US$ 295.1 million (Rs. 12,717.5 million) at the close of Q1 2007.

At the end of Q2 2007, receivables were at US$ 123.8 million (Rs. 5,024.5 million) as compared to US$ 122.6 million (Rs. 5,281.9 million) in the previous sequential quarter. Days outstanding for the current quarter were at 70 days as compared to 72 days in Q1 2007.

Figures in Million INR except EPS and Share Data
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CONSOLIDATED STATEMENT OF INCOME (RS. "˜000): BASED ON CONVENIENCE TRANSLATION
For the quarter / period ended
Particulars	Jun 30 2007		Mar 31 2007		Jun 30 2006		2006		Additional Provision in 2006		2006 (Excluding additional provisions)		Jun 30 2006 (Excluding additional provisions)
Exchange rate$1 = INR	40.58		43.10		45.87		44.11		44.11		44.11		45.87
Revenues	6,628.1		6,724.1		6,560.7		25,533.1		-		25,533.1		6,560.7
Cost of revenues	4,303.0		4,203.8		3,982.9		15,872.2		(312.3)		16,184.5		4,307.6
Depreciation	176.7		164.2		146.3		581.1		-		581.1		146.3
Gross Profit	2,148.4		2,356.1		2,431.5		9,079.9		312.3 1		8,767.6 1		2,106.7
Sales and marketing expenses	481.4		484.6		505.7		1,900.7		-		1,900.7		505.7
General and administrative expenses	678.1		651.2		806.1		2,838.2		-		2,838.2		806.1
Provision for doubtful debts and advances	23.3		27.7		7.4		52.5		-		52.5		7.4
Foreign exchange (gain) / loss, net	(347.9)		(113.4)		(4.5)		121.2		Â		121.2		(4.5)
Operating income	1,313.5		1,306.0		1,116.8		4,167.2		312.3		3,855.0		792.0
Other income / (expense), net	286.7		154.4		180.8		550.0		4.6		545.4		176.0
Income before income taxes	1,600.2		1,460.3		1,297.6		4,717.2		316.9 2		4,400.4 2		968.1
Income taxes	252.7		260.1		1,444.5		2,103.7		1,194.8		908.9		202.1
Net income/(loss)	1,347.5		1,200.3		(147.0)		2,613.6		(877.9) 3		3,491.4 3		765.9
Earning per share	Â		Â		Â		Â		Â		Â		Â
- Basic	9.72		8.68		(1.07)		18.94		-		25.31		5.55
- Diluted	9.63		8.61		(1.07)		18.82		-		25.14		5.55
Weighted average number of common shares used in computing earnings per share	Â				Â		Â		Â		Â		Â
- Basic	138,646,132		138,342,512		137,889,376		137,957,477		-		137,957,477		137,889,376
- Diluted	139,978,442		139,413,330		137,889,376		138,904,860		-		138,904,860		137,889,376
													Â
Prior years' tax review by IRS and the Department of Labor Review by Patni's US Operations has resulted in the net reversals of additional provisions leading to an increase in Q2 2006 Gross Profit and Operating Income and a decrease in Q2 2006 Net Income.
													Â
1 - due to reversal of payroll taxes for earlier years, net of accrual from DOL review
2 - impact of 1, net of write-back of interest/penalty for earlier years
3 - impact of re-assessed corporate taxes for earlier years, net of 2

Important Notes to this release:

• Fiscal Year

Patni follows a January - December fiscal year. The current review covers the financial and operating performance of the Company for the second quarter ended 30^th June 2007

• Percentage analysis

Any percentage amounts, as set forth in this release, unless otherwise indicated, have been calculated on the basis of the U.S. Dollar amounts derived from our consolidated financial statements prepared in accordance with U.S. GAAP, and not on the basis of any translated Rupee amount. Calculation of percentage amounts on the basis of Rupee amounts may lead to results that are different, in a material way, from those calculated as per U.S. Dollar amounts.

• Convenience translation

A Consolidated Statement of Income as per Convenience Translation prepared in accordance with US GAAP is available on page 8 of the Fact Sheet attached to this release. We have translated the financial data derived from our consolidated financial statements prepared in accordance with U.S. GAAP for each period at the noon buying rate in the City of New York on the last business day of such period for cable transfers in Rupees as certified for customs purposes by the Federal Reserve Bank of New York. The translations should not be considered as a representation that such US Dollar amounts have been, could have been or could be converted into Rupees at any particular rate, the rate stated elsewhere in this document, or at all. Investors are cautioned to not rely on such translated amounts.

About Patni Computer Systems Ltd:

About Patni

Patni Computer Systems Limited (BSE:PATNI COMPUT) (NSE:PATNI) (NYSE:PTI) is a global provider of IT Services and business solutions, servicing Global 2000 clients. Patni caters to its clients through its industry-focused practices, including insurance, financial services, manufacturing, telecommunications and media, and its technology-focused practices.

With an employee strength of over 12,000; multiple global development centres spread across 12 cities worldwide; 21 international offices across the Americas, Europe and Asia-Pacific; Patni has registered revenues of US$ 579 million for the year 2006.

Patni's service offerings include application development and maintenance, enterprise application solutions, product engineering services, infrastructure management services, business process outsourcing, quality assurance and engineering services.

Committed to quality, Patni adds value to its client's businesses through well-established and structured methodologies, tools and techniques. Patni is an ISO 9001: 2000 certified and SEI-CMMi Level 5 organization, assessed enterprise wide at P-CMM Level 3. In keeping with its focus on continuous process improvements, Patni adopts Six Sigma practices as an integral part of its quality and process frameworks.

For more information on Patni, visit www.patni.com.

IMPORTANT NOTE:

Certain statements in this release concerning our future growth prospects are forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding fluctuations in earnings, our ability to manage growth, intense competition in IT services including those factors which may affect our cost advantage, wage increases in India, our ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, restrictions on immigration, our ability to manage our international operations, reduced demand for technology in our key focus areas, disruptions in telecommunication networks, liability for damages on our service contracts, the success of the companies in which Patni has made strategic investments, withdrawal of governmental fiscal incentives, political instability, legal restrictions on raising capital or acquiring companies outside India, and unauthorized use of our intellectual property and general economic conditions affecting our industry. The company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company.