Issue Summary

Type 100% book building Size Rs 3.7 bn to Rs 4.3 bn (based on the range of Rs 200-Rs 230 per share) Price Price band of Rs 200-Rs 230 per share Face value Rs 2 per share Shares on      offer 18.7 m Issue Opens January 27, 2004 Issue Closes February 5, 2004

Min. subscription 50 shares Lead Managers DSP Merrill Lynch, Kotak Mahindra Capital, Karvy Listing Mumbai and National Stock Exchange Limited Promoters Narendra K. Patni, Gajendra K. Patni, Ashok K. Patni and iSolutions Inc (60.8%) Promoters post     issue holding 51.3%

	Issue structure
	QIBs Non-Institutional Investor Retail Investor No. of shares 11,234,400 2,808,600 4,681,000 % of total size 60% 15% 25% Minimum Bid/Application size Rs 50,001 Rs 50,001 Minimum 50 shares Maximum Bid/Application size Not exceeding book built portion Not exceeding book built portion Rs 50,000

Background

	Business
	Patni Computer Systems (PCS) is a mid-size company engaged in providing software solutions and services, domestically and internationally. The company's sphere of offerings includes application development and integration, application maintenance, enterprise application systems, R&D services and business process outsourcing services. PCS has GE Group and State Farm Insurance as its two largest clients with revenue contributions of US$ 76.8 m (42% of consolidated revenues) and US$ 31.5 m (17%) to PCS' 9mFY04 revenues. Among verticals, PCS has a substantial presence in the financial services, insurance and manufacturing verticals. The share of revenues from these verticals in 9mFY04 was around 79%.
	The main objectives of this public issue are:
	For PCS, the three major objects of the public issue are: Raising capital for strategic initiatives, increasing sales, marketing and promotional activities and general corporate purposes. Achieving the benefits of listing. Meeting offer expenses.
	Promoters
	Patni Computer Systems, incorporated in 1978, was promoted by Narendra K. Patni (Chairman & CEO), Gajendra K. Patni (Executive Director), Ashok K. Patni (Executive Director) and iSolutions Inc. iSolutions Inc, in turn, is a corporation incorporated in Massachusetts, USA and is wholly-owned by Mrs. Poonam Patni, Mr. Narendra K. Patni's wife, and Mr. Anirudh Patni, Mr. Narendra K. Patni's son. The share capital of iSolutions Inc. comprises 15,000 shares of US$1.0 each.
	Sector
	The Indian software sector has been, over the past couple of years, facing pressure of slowdown in the global technology spending. While corporations around the world (especially in the US) reduced their IT budgets, there has been a downward pressure on billing rates as well. However, this slowdown has presented companies in the Indian software sector with a huge opportunity on the outsourcing front, the market for which is expected to grow at a CAGR of over 50% through 2008 (NASSCOMM-McKinsey estimate). As a matter of fact, despite this downturn, the Indian software industry grew at an average rate of 26%-28% p.a. Even for FY04, while NASSCOM has projected a 26% growth for the sector, there is a big possibility of this target being overshot. This is because the momentum towards outsourcing is gaining ground. Indian software companies therefore, can hope for increased business.

Reasons to apply

	Outsourcing potential:  As corporations around the globe vie for improving their operational efficiencies through outsourcing non-core activities, the Indian software industry stands to gain immensely. This is because of the high-quality services it provides with over 35%-40% cost savings for the customers. Despite huge potential to grow for all companies in the Indian software sector, for mission critical jobs, clients look for large-sized well-known vendors that can provide end-to-end solutions. PCS has an advantage in this regard, as it is the sixth largest software exporter from the country. Source: Company's prospectus; * For the year-ended March 31, 2003
	Managing key relationships: PCS has a thirteen-year relationship with its largest client, GE (42% of 9mFY04 revenues) and this is reflective of the company's ability to manage client engagements. This factor is likely to help PCS as a reference point in garnering more contracts in the future. With more and more MNCs looking to outsource their operations from low cost destinations like India, PCS could benefit.
	Growth in the financial vertical: Almost 50% of 9mFY04 revenues of PCS were accounted by financial services and insurance companies. This area is likely to witness rapid growth going forward, as global companies operating in these sectors are looking to upgrade the existing legacy systems. PCS already has key clients like the GE Group and State Farm Insurance in this vertical, and maintaining an elite list like this can act as a harbinger of garnering more contracts in these areas going forward. The vertical split…   FY01 FY02 FY03 9mFY04 Insurance 33.6% 34.2% 38.0% 34.1% Manufacturing 23.3% 26.9% 27.1% 28.5% Fin. services 15.7% 14.9% 13.9% 15.9% Others 27.4% 24.0% 21.0% 21.5% Total 100.0% 100.0% 100.0% 100.0%

Reasons not to apply

	High client concentration:  PCS is highly dependent on two companies - GE and State Farm Automobile Insurance Company (SFAIC) for its revenues. While GE's share of revenues for the nine months ending September 2003 is 42%, SFAIC's share stands at 17%. The top 10 clients contributed to over 80% of PCS' 9mFY04 revenues. Also, PCS's revenues are highly skewed towards the US (89% of 9mFY04 revenues). Therefore, amidst high levels of uncertainty surrounding the global technology sector, this high degree of reliance on few customers and the US economy increases the risk profile.
	Inability to retain key personnel:  In these times of increasing global competition in the technology sector, attracting and retaining key employees holds immense significance for a company's growth. While high levels of attrition is a menace for all technology companies in India, PCS' attrition rate is much higher than the industry average of around 14%-15%. On an annualised basis, the company's attrition rate for September 2003 was 27%.
	Challenges in scalability:  PCS started its operations in the year 1978, and since then the company has grown to only around 6,700 employees in 9mFY04. This is very low when compared to the base that relatively newer companies like Infosys (23,000+) and Wipro have built over the years. This is indicative of the fact that PCS has not been proactive. From here on, it would require a great effort from the company to scale up. This means high capital expenditure, challenges in growing as well as retaining employees, improving client satisfaction and preserving the company culture.

Financial Performance

(Rs m)	FY03	9mFY04
Revenues	6,256	8,439
Other Income	69	106
Total Income	6,325	8,544
Expenditure	4,024	6,712
EBIDTA	2,232	1,727
GPM (%)	35.7%	20.5%
Depreciation	305	314
Interest	19	1
Profit before tax	1,976	1,517
Tax	340	275
Profit after tax	1,636	1,242
NPM (%)	26.2%	14.7%
No. of shares	74.3	111.4
EPS (Rs)	14.7	14.9
P/E Ratio (x)	-	14.5
*consolidated accounts

Shareholding

(%)	Pre-Offer	Post-Offer
Promoters	60.8	51.3
Others*	39.2	33.7
Public	-	15.0
Total	100.0	100.0

* General Atlantic Mauritius Ltd., GE Capital Mauritius Equity Investment,
and GE APC Technology Investments II (Mauritius) Ltd.

Comparative valuations and comments

	PCS	Infosys	Satyam
Price (Rs)	215*	5,431	341
P/E (x)	14.4	29.7	19.4
P/Sales (x)	2.1	7.8	4.4
OPM (%)	20.5	32.9	27.6
NPM (%)	14.7	26.3	22.8

* Assuming an average price of Rs 215, i.e., between Rs 200 and Rs 230.