Recommendations » India

Persistent Systems Q2FY13 results update

Contributed by Nirmal Bang

Significant growth in Revenues led by IP led revenues

USD revenues grew by 9.4% QoQ with IP and Product Engineering contributing 6.4% and 3% respectively.

Rupee revenues grew 8.7% QoQ. Traction was seen in the Telecom segment and IBM ramp down being bottomed out. IP revenues contributed 19% to the revenues.

Margins improve despite wage hikes

EBIDTA margins during the quarter grew 41 bps despite an average wage hike of ~ 10% to the offshore employees. Utilizations have improved to 77.7% from 74.1% in the previous quarter. Technical employee count went down by 176 numbers while marketing costs going up by 7.3% QoQ.

PAT for the quarter grew 7.4% QoQ. Forex loss stood at Rs.16 crore during the quarter.

Other Highlights

- PSL acquired Washington based Doyenz’s disaster recovery product rCloud during the quarter. This product has a $4mn annual run rate and would contribute to PSL’s quarter from Q3FY13 onwards. Deal value was not disclosed.
- Capex stood at Rs.25 crore during the H1FY13 and plans to spend Rs. 60-70 crore for the rest of the year.
- PSL plans to add 600 net employees in the H2FY13 apart from the IP acquisitions it has made.

Valuation & Recommendation

We have increased our revenue projections for FY13E and for FY14E post the Q2FY13 results. This is backed by the latest acquisition and growing contribution of the IP led revenues to the revenues and margins of the company.

At CMP, the stock is available at a P/E of 9.5x and 7.8x its expected earnings for FY13E and FY14E respectively which we feel is attractive. We are rolling our target price to Rs.551 based on the FY14 earnings expectations which gives 29% upside from current levels.