Persistent Systems (Q3 FY13)

India Infoline News Service | Mumbai |

We tweak estimates and increase our 9-month TP to Rs590. Maintain BUY.

CMP Rs522, Target Rs590, Upside 13.1% 
  • Q3 FY13 dollar revenues for Persistent systems came in-line with estimates at US$61.8mn (+1.2% qoq). Inherent seasonality in its IP revenues played out as expected de-growing 2.6% qoq. Non-IP business (82% of revenues) driven by its four momentum areas of analytics, mobility, collaboration and clouds supported the revenues growing 2% qoq. Billed efforts grew 1.8% qoq while pricing was flat (+1.4% qoq offshore and -0.7% qoq onsite)
  • Post the strong growth in Q2 FY13, telecom vertical de-grew 5.7% qoq. Amongst other verticals,  Infrastructure & systems grew 2.8% qoq and life sciences/HC grew 10.5% qoq. Within geographies, growth was driven by US (+1.8% qoq) and APAC (+11.3% qoq). On the back of the strong growth last quarter, Europe de-grew materially by 16.6% qoq. From the clients’ perspective, growth was driven by large clients with top, top5, top10 growing above company average at 3%, 4% and 6% respectively. Non Top10 clients de-grew 3% qoq.  Total clients added during the quarter were 44, seven of which are large and hence with strong mining potential.
  • During the quarter, Persistent furthered its in-organic goals by acquiring Novaquest –a value added reseller (VAR) of Dassault Systemes USA with specialization in product lifecycle management (PLM)   and search based technology solutions. With an annual run-rate of US$7mn, the company brings on-board a marquee clientele and further strengthens Persistent’s offerings. 
  • The Q3 FY13 OPM corrected 250bps qoq to 24.7% more than our estimate of 110bps correction. This is on the back of higher than expected hiring, higher SG&A expenses and de-growth in high margin IP revenues. The employee base grew 5.5% qoq while the SG&A expenses increased 200bps qoq as a % of the revenues due to increased facility expenses. The PAT of Rs495mn was marginally ahead of estimates on the back higher than expected forex gains. The attrition (LTM) basis continued its downward trend to 16% (16.6% for Q2 FY13).
  • Sustained traction for Persistent’s offerings has held the company in good stead in a seasonally weak quarter for its IP services business. Its focus on improving its offerings and relevance to its clientele has resulted in another meaningful acquisition as well as continued sales/management bandwidth expansion. Management commentary on improved business traction especially in its focus areas (Social, mobility, analytics, cloud), sell-with partnerships and enterprise relationships should continue to help sustain the momentum. We tweak estimates and increase our 9-month TP to Rs590. Maintain BUY.
Result table
(Rs mn) Q3 FY13 Q2 FY13 % qoq Q3 FY12 % yoy
Net sales 3,330 3,269 1.9 2,677 24.4
Operating profit 824 890 (7.4) 696 18.4
OPM (%) 24.7 27.2 (249) bps 26.0 (126) bps
Depreciation (198) (189) 4.6 (159) 24.4
Interest - - - - -
Other income 84 (78) (206.9) 28 204.2
PBT 710 623 14.0 565 25.7
Tax (215) (176) 21.9 (159) 35.3
Effective tax rate (%) 30.3 28.3 - 28.1 -
Adjusted PAT 495 446 10.9 406 22.0
Adj. PAT margin (%) 14.9 13.7 199 bps 15.2 49 bps
Reported PAT 495 446 10.9 406 22.0
EPS (Rs) 11.2 10.4 7.4 8.1 (0.1)
Source: Company, India Infoline Research

Financial Summary

Y/e 31 Mar (Rs m) FY12 FY13E FY14E FY15E
Revenues (Rs m) 10,003 12,969 14,403 16,298
yoy growth (%) 28.9 29.7 11.1 13.2
Operating profit 2,324 3,387 3,518 3,854
OPM (%) 23.2 26.1 24.4 23.7
Reported PAT (Rs m) 1,417 1,917 2,235 2,351
yoy growth (%) 1.5 35.2 16.6 5.2





EPS (Rs) 35.4 47.9 55.9 58.8
P/E (x) 14.7 10.9 9.3 8.9
Price/Book (x) 2.5 2.1 1.7 1.4
EV/EBITDA (x) 8.4 5.4 4.8 3.8
RoE (%) 17.9 20.7 20.0 17.7
RoCE(%) 24.8 28.9 27.4 23.9
Source: Company, India Infoline Research
 
BSE 650.60 3.95 (0.61%)
NSE 649.00 2.70 (0.42%)

***Note: This is a NSE Chart

 

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