Client & staff churn top worries: Analyst

Written by Rachana Khanzode | Mumbai | Updated: Jan 12 2011, 04:35am hrs
The acquisition of 63% stake in Patni Computer Systems by Nasdaq-listed iGate augurs well for the Patni brothersNarendra, Gajendra and Ashok Patnibut, however, does not propel the company into the top league among Indian and Indian-centric IT companies. While the deal is valued at $1.22 billion, the combined entity, that has revenues of $940 million for the last twelve months, ranks tenth in the pure play offshore providers' list after the top fiveCognizant, HCL, Infosys, Tata Consultancy Systems, and Wiproand the four mid-tier firmsTech Mahindra, Genpact, MphasiS and Mahindra Satyam.

Moreover, Patni is all set to witness client concerns and increasing attrition over the next 12-18 months as it decides on merger with iGate.

Offshore Insights CEO & principal analyst Sudin Apte said, Top practice lines at TCS and Infosys such as ADM (application development and management) or enterprise application services are each well over a billion dollars in size. In contrast, the joint entitys billion dollar business comes from over half a dozen service lines and industry verticals each. Barring application development, (joint revenue of around $ 550 million) all other service lines of the combined entity are in the sub $100 million dollar category.

The management of both Patni and iGate have a view that the size of the combined entity is expected to help them in bagging large size contracts. However, analysts point out that in current times the size of the combined entity is not so important a factor in acquiring contracts but the magnitude of work and the differentiating factor that the provider brings in their area of interest.

Patni might witness client attrition over the next 15-18 months until more clarity is emerged on the overall management structure and how the merged entity is going to be. Forrester Researchprincipal analyst Jan Erik Aase said, The current Patni customers would be cautious and concerned, but it would be unwise to assume that they are ready to switch vendors. The reality is, ADM transitions are not easy, they have the potential to cause a lot of disruption, and are more likely to impact the clients end customers. Analysts also say that clients are going to be concerned over the increasing attrition levels at Patni. They point out that senior mangers and developers will look out for better opportunities as tier I players are hiring now.

Addressing the employee attrition risk needs to be the utmost priority of the combined entity. Then, they must cherry-pick their verticals and focus on building an effective Global Delivery Model (GDM) in the next 12-15 month timeframe. Their clients will begin to evaluate other options if they are not able to address these in the said timeframe, Aase adds.