The Hindu Business Line : Patni to focus on key verticals, technologies

In specific, Patni, which describes itself as a pioneer in the product engineering services segment, is working to leverage its status as a leading player in the embedded technology space to increase its income.

Pune , Nov. 18

PATNI Computer Systems m is planning to achieve a greater diversification in its revenue streams by creating strong practices in key verticals and technologies.

In the third quarter of CY 2005 ended September 30, Patni's revenues were at $ 118.28 million (Rs. 519.70 crore), higher by 44.2 per cent over $ 82.05 million (Rs. 376.66 crore) in Q3 of 2004. Of this, the revenues from insurance, manufacturing, financial services and telecom verticals worked out to 27.5 per cent, 22.1 per cent, 17.7 per cent and 14.9 per cent, respectively.

In specific, the company, which describes itself as a pioneer in the product engineering services segment, is working to leverage its status as a leading player in the embedded technology space to increase its income.

This strategy has been evolved in the context of the consideration that increased consumer demand for innovative electronic products at lower costs presents tremendous challenges for companies trying to satisfy both requirements. For manufacturers, survival is determined not only by product differentiation, but by how quickly products can be brought to market in a new geography or category. These requirements of markets have given rise to outsourcing in the product engineering services space.

Thus, according to Nasscom estimates, R&D outsourcing in product engineering services (which include embedded software and offshore product development) accounted for nearly $2.3 billion in 2004 and is expected to touch $8-11 billion by 2008.

Mr Ajay Chamania, Vice-President and Head of Embedded Technology Solutions, a strategic business unit (SBU) of Patni, told Business Line: "In addition to consumer electronics, which is traditionally known to be a high adopter of embedded technologies, there are significant opportunities in verticals such as automotive, medical electronics and computing that are driving the growth of product engineering services."

"One such area is that of the semiconductor chip market wherein software design is increasingly playing a crucial role. Indian IT vendors, given their strengths in software, are vying for a play in the fabless market, especially in light of the fact that the country completely missed out on the hardware opportunity that eventually became the domain of countries such as China and Taiwan."

Citing the instance of medical electronics and life sciences, Mr Chamania pointed out that the medical vertical utilises embedded technologies at varying levels in monitoring, therapeutic and diagnostic devices.

There is an increasing trend towards creating smaller, high quality, less invasive and more affordable machines and demands on the embedded systems vary from highly optimised throughput to extreme fault tolerant and predictable real-time systems.

Some examples in the embedded computer space are the computer market for medical imaging, diagnostics and therapy. This is led by the major imaging machines; the MRI machines, PET and CAT scanners and E-Bean tomography equipment. Apart from this, embedded technology contributes tens of thousands of instruments in hospitals, doctors and dentists' offices, ranging from blood analysers and body function monitors to radiation equipment, portable diagnostic imaging and home monitoring devices such as cholesterol monitors, blood glucose meters, and so on.

"If one were to consider the use of semiconductors in the medical electronics market in the US, it is notable that medical applications that utilise semiconductors make up nearly 34 per cent of the total medical device market which is estimated at $174 billion, according to a Databeans study on semiconductor consumption. It is estimated that the revenues from these electronic applications are growing at an average annual growth rate of 18 per cent over the next five years, resulting in a market worth $179 billion by 2009."

With the role of semiconductors substantially increasing, one of the fastest growing application markets is home monitoring and diagnostic devices, telemetry and diagnostic imaging applications and provide ample opportunity for suppliers targeting these designs.

The other areas showing good growth and driving new product changes are medical information management, medical diagnostics, therapy planning and implementation and patient monitoring, all involve collecting, trending and management of data.

Auto is another area where high growth is expected.

Mr Chamania said automobiles today "are a convergence of mobility, safety communications and entertainment" and resemble "computers on wheels" because of the increasing number of digital systems under the hood and in the passenger cabin.

The global demand for vehicle electronics systems is expected to climb to nearly $75 billion in 2005. Growth is forecast across all product segments with the strongest demand coming from the emerging markets in Asia and East and Central Europe. With respect to software, industry estimates have suggested that the costs associated with developing automotive software accounted for around 4 per cent of the total vehicle cost in 2002. This is expected to rise to nearly 13 per cent by 2010.

With similar growth figures expected in medical electronics, industrial automation and storage and computing, the evolution of market demand is expected to fuel a significant amount of business and India, with its rich pool of engineering talent, is expected to subsequently gain from it.

The third wave of outsourcing has arrived and it is vendors such as Patni who are staking a claim to it, Mr Chamania said.

Files papers for ADS issue

PATNI Computer Systems informed the stock exchanges on Friday that it has filed a registration statement (Form F-1) with the Securities and Exchange Commission (SEC) for its initial public offering of 68,75,000 American Depository Shares (ADS). Each ADS represents two equity shares of Rs 2 each.

This includes a primary offering of 51,25,000 ADS by the company and 17,50,000 ADS offering by the selling shareholders under the sponsored ADS offering which was earlier approved by members of the company and the FIPB.

In addition, the underwriters have the option to purchase up to an additional 10,31,250 ADS from the company to cover over-allotments, if any.

The Patni Computer share gained Rs 5.50 on Friday on the BSE, closing at Rs 472.20 from the previous close of Rs 466.70.

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