Q4 FY13 dollar revenues for persistent were in-line with expectation coming in at US$62.1mn (+2.2% qoq). The IP business was weak de-growing 1.7% on a sequential basis. The Product engineering as well as the platform business, on the other hand, grew 3.1% qoq in dollar terms. The volumes of the non IP business de-grew 1.8% qoq (-2.1% offshore, +2% onsite) while on the other hand realisation was up materially (+9.7% qoq onsite, +2.8% qoq offshore)
During the quarter, Persistent accrued US$1.8mn from its Novaquest acquisition done in Q3FY13. Subsequently, ex-Novaquest business, the organic revenue growth was slight weak with the Product engineering/Platforms business revenues growing 1.7% qoq and the IP business de-growing ~11.6% qoq.
Amongst the key verticals, Infrastructure and Systems drove the growth (+7.2% qoq) followed by Healthcare and Life sciences (+4.2% qoq). Telecom vertical on the other hand, continued its weak run de-growing 10.7% sequentially. The key geography of America grew in-line with the company average (+2.2% qoq). On the other hand APAC grew well at 9.2% qoq but a smaller base. From the clients’ perspective the growth was muted for top 2-5 and top 6-10 clients. As opposed to this, the growth in top client was strong at 5% qoq.
In Q4 FY13, Persistent had announced its licensing agreement with HP for its client automation software wherein Persistent will license and service HP’s clients for the automation product. With continued investments in new version of this product, Persistent would accrue the related IP as well as services revenues going forward in FY14.
The OPM performance for Persistent Systems was ahead of estimates with operating margin expanding 14bps qoq versus expectation of 80bps correction due to transition and integration of HP deal and decent hiring . The strong hiring (+3.7% qoq net addition) costs, the royalty payments for the PLM business and the increased G&A costs related to HP and Novaquest deals were offset by strong realisation improvement and the lower variable pay/doubtful debt provisions. Higher operating margin as well as forex gain resulted in net profit coming ahead of estimate at Rs519mn. On the employee front, the attrition further trended down to 14.4%. The hiring remained good with company guiding for addition of another 600-800 employees (net) in FY14.
Persistent Systems had a fairly stable quarter with the weakness in the IP business (17.5% of total revenues) offset by stable growth in the product engineering and platforms business. The continued traction in the product engineering and platforms business as well as incremental growth from HP deal (IP led) should help the company grow its revenues above industry average. Its key IP business (Location, IBM) components also should contribute to the growth subject to their traditional seasonality. We estimate Revenues/Net Profit to witness a CAGR of 14.7% each over FY13-15E. We keep our long-term positive view on Persistent but believe quarterly results volatility cannot be ruled out. Maintain BUY with 9-month TP of Rs605.
|(Rs mn)||Q4 FY13||Q3 FY13||% qoq||Q4 FY12||% yoy|
|OPM (%)||24.9||24.7||14 bps||28.6||(370) bps|
|Effective tax rate (%)||28.1||30.3||-||25.4||-|
|Other provisions / minority etc||-||-||-||-||-|
|Adj. PAT margin (%)||15.5||14.9||67 bps||15.2||30 bps|
|Y/e 31 Mar (Rs m)||FY12||FY13||FY14E||FY15E|
|Revenues (Rs m)||10,003||12,945||14,593||16,824|
|yoy growth (%)||28.9||29.4||12.7||15.3|
|Reported PAT (Rs m)||1,417||1,876||2,155||2,471|
|yoy growth (%)||1.5||32.4||14.8||14.7|
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