persistent systems ltd - result update q2fy12

8/3/2019 Persistent Systems Ltd - Result Update Q2FY12

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Wealth Research, Unicon Financial Intermediaries. Pvt Ltd.

Email: [email protected]

ONG TERM INVESTMENT CALL

ACCUMULATE18 October 2011

Company Report | Q2FY12 Result Update

Increase in Operating Expenses Impacts Margins for Q2, on

a YoY basis

Persistent Systems Ltd. (PSL) has delivered a decent performance for the

second quarter of the financial year. For the quarter, they continued to

see growth in their cloud and mobility practice as customers continued to

look for cost effective, time-to-time market solutions.

Quarterly Performance: PSL reported top-line and bottom-line numbers

which were slightly below our estimates. Revenue at INR 2381 mn was

up 27% and 6% on a YoY and a QoQ basis respectively. EBITDA for the

quarter stood at INR 446 mn, up 4% from the same quarter in the

previous year. Reported PAT stood at 324 mn for the quarter, an increase

of 18% QoQ. A pay hike of ~9% in the month of July increased the

employee costs and affected the EBITDA margins by -429bps YoY. The

PAT margins also dropped by -555bps YoY, but on a QoQ basis the

EBITDA and PAT margins have seen an improvement of 135 bps and 129

bps respectively.

New customers and acquisitions in the quarter: PSL added 37 new

customers for the quarter. The clients billed for the current quarter stoodat 253. Moving forward they see growth potential in the European market

through strategic alliances and partnerships. During the quarter PSL

acquired the French software business from Agilent Technologies. PSL

also announced a strategic services partnership with Dassault Systemes

in the PLM space. PSL has added 632 new graduates from an

engineering background this quarter.

Performance across Industry Verticals & Geographies: The

Infrastructure and Systems segment contributed to 67.4% of the revenue

as compared to Telecom and Life sciences segment which contributed to22% and 10.6% of the revenue respectively. As in the previous quarters

the contribution from North America to PGL revenue has not seen any

major decrease and stand at 82% of the total revenue as compared to

Europe and Asia-Pacific which contribute 7.8% and 10.2% of the total

sales.

Short term deals seen due to volatile environment:PSL has seen a delayin the decision making by clients, for long term contacts due to the

uncertain environment in the US, because of which closure rates have

been hit. In this environment clients prefer short term contracts which

offer greater flexibility as compared to longer deals. Although the deal

pipeline for PSL is in a healthier position as compared to Q1FY12.

Industry IT / ITES

CMP (INR) 323Target (INR) 381

Upside / Downside 18%

52 week High / Low (INR) 467.15/280.80

Market Cap (INR bn) 13.04

3M Avg. Daily Volumes 25.28

P / E (FY12 E) 10.3x

Shareholding Pattern (%)

Promoter

39%

FIIs

6%

DIIs

26%

Others

29%

1 Year Stock Chart

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Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Persistent Systems

Nifty

Stock Performance

1 Month 3 Months 1 Year

PSL 6.8% -14.6% -27.3%Nifty 2.4% -8.3% -16.9%

(INR in mn)

Particulars Actual Estimates

Total Income 2381 2410

EBITDA 446 390

Reported PAT 324 337* Source: Bloomberg, Unicon Research


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Consolidated Financials(INR in mn)

Particulars Q2 FY12 Q2 FY11 Y-o-Y Q1 FY12 Q-o-Q

Net Revenue 2,381.7 1,870.0 27% 2,237.8 6%

Operating Exp. 1,935.7 1,439.7 34% 1,848.9 5%

EBITDA 446.0 430.3 4% 389.0 15%

EBITDA Margin (%) 18.7 23.0 -429 bps 17.4 135 bps

Depreciation 139.5 100.7 39% 126.5 10%

EBIT 306.5 329.7 -7% 262.5 17%

EBIT (%) 12.9 17.6 -476 bps 11.7 114 bps

Interest 0.0 0.0 N.A 0.0 N.AOther Income 144.6 59.4 144% 137.8 5%

Tax Provision 127.1 30.7 313% 124.7 2%

Tax Rate (%) 28.2 7.9 2026 bps 31.1 -298 bps

PAT 324.1 358.3 -10% 275.7 18%

Extraordinary Items 0.0 0.0 N.A 0.0 N.A

Minority Interest 0.0 0.0 N.A 0.0 N.A

Reported PAT 324.1 358.3 -10% 275.7 18%

PAT Margin (%) 13.6 19.2 -555 bps 12.3 129 bps

Earning per equity share (EPS)

Diluted EPS (INR) 8.10 8.96 -10% 6.89 18%Source: Company, Unicon Research

Outlook & Valuation

The global environment and specifically the situation in the US (as it contributes to 82% of revenue) will have a significant

impact on the top and bottom line of the company in the quarters ahead. The growth numbers from the US suggest that

they may not be headed towards a recession. The company has so far been able to substitute long term deals with shorter

flexible deals due to their innovation and cost effective pricing model. Due to the deprecation of the INR in the quarter, the

company has seen a benefit of 1.9% to the EBITDA. PSL has a forex hedged position of USD 85.29 mn at USD 49.44 over 12

months. We recommend an ACCUMULATE on the stock with a potential upside of 18%. At CMP the stock is trading at P/E

10.3x FY12E, we maintain our price target of INR 381.


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Unicon Investment Ranking Methodology

Rating Buy Accumulate Hold Reduce Sell

Return Range >= 20% 10% to 20% -10% to 10% -10% to -20%

persistent systems ltd - result update q2fy12

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