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1
Y/E March (
`
cr) 3QFY12 2QFY12
% chg (qoq)
3QFY11
% chg (yoy)
Net revenue 268 238
12.4
195
37.3
EBITDA 70 45
53.5
43
62.7EBITDA margin (%) 26.0 19.0 696bp 21.9 406bp
PAT 41 32
25.2
36
12.0
Source:
Company, Angel Research
For 3QFY2012, Persistent Systems (Persistent) reported lower-than-expectednumbers on the top-line front but outperformed expectations on the bottom-linefront. Management has revised FY2012 sales guidance downwards to20.5-23.5% yoy from 29% yoy and PAT guidance to
`
125cr-135cr from
`
140cr.Persistent is into pure-play offshore product development (OPD), which is highly discretionary in nature and, thus, poses a huge risk for the company if any slowdown kicks in the economy.
We maintain our Neutral view on the stock.
Quarterly highlights:
For 3QFY2012, Persistent reported revenue of US$51.7mn,up merely 0.3% qoq. Again in this quarter, the company witnessed a decline inonsite billing rates to US$12,387 people per minute (ppm) from US$12,665 ppmdue to higher fixed price contracts. In INR terms, revenue growth was robust at12.4% qoq to
`
268cr due to steep INR depreciation against USD. The company’sEBITDA and EBIT margins increased by 696bp and 688bp qoq to 26.0% and20.1%, respectively, aided by ~600bp qoq due to INR depreciation.
Outlook and valuation:
Persistent, due to its niche focus on OPD, is exposed tohigher risks if any slowdown kicks in developed economies. This, along with thecautious outlook on the economy, has led to management revising its FY2012revenue growth guidance downwards. Over, FY2011-13E, the company isexpected to record USD and INR revenue CAGR of 14.8% and 20.3%,respectively. On the EBITDA margin front, we expect margin to increase to 22.7%and 23.0% for FY2012 and FY2013 from 20.4% in FY2011, majorly due to INR depreciation and higher utilization level, from 74% in 3QFY2012 to 74.7% inFY2013. On the bottom-line front, the company has revised its guidance to
`
125cr-135cr from
`
140cr previously. Thus, over FY2011-13E, we expect thecompany to record EBITDA and PAT CAGR of 27.8% and 0.1%, respectively. At the CMP of
`
333, the stock is trading at 9.5x FY2013E EPS of
`
35.0. We valuethe stock at 9.5x FY2013 EPS i.e., 50% discount to Infosys, which gives us a fairprice of
`
332, and maintain our Neutral rating on the stock.
Key financials (Indian GAAP, Consolidated)
Y/E March (
`
cr) FY2010 FY2011 FY2012E FY2013ENet sales 601 776 1,003 1,122
% chg 1.2 29.1 29.3 11.9
Net profit 115 140 130 140
% chg 74.0 21.5 (6.9) 7.5
EBITDA margin (%) 24.3 20.4 22.7 23.0
EPS (
`
) 32.1 34.9 32.5 35.0
P/E (x) 10.4 9.5 10.2 9.5P/BV (x) 1.9 1.8 1.6 1.4RoE (%) 18.0 18.7 15.2 14.3RoCE (%) 17.5 15.5 19.7 19.4EV/Sales (x) 1.6 1.3 1.0 0.9EV/EBITDA (x) 6.7 6.2 4.6 3.9
Source: Company, Angel Research
NEUTRAL
CMP
`
333Target Price
-
Investment Period -
Stock InfoSectorBloomberg CodeShareholding Pattern (%)Promoters39.0MF / Banks / Indian Fls27.0FII / NRIs / OCBs5.8Indian Public / Others28.2 Abs. (%)3m1yr3yrSensex0.3(11.3)95.9Persistent4.8(18.7)-Face Value (
`
)IT Avg. Daily VolumeMarket Cap (
`
cr)Beta52 Week High / Low1,3310.510453/28112,956 BSE SensexNifty Reuters CodePSYS@IN16,9965,118PERS.BO
Ankita Somani
+91 22 39357800 Ext: 6819ankita.somani@angelbroking.com
Persistent Systems
Performance highlights
3QFY2012 Result Update | IT
January 24, 2012
Persistent | 3QFY2012
Result Update
January 24, 2012
2
Exhibit 1:
3QFY2012 performance (Indian GAAP, Consolidated)
Y/E March (
`
cr) 3QFY12 2QFY12
% chg (qoq)
3QFY11
% chg (yoy)
9MFY12 9MFY11
% chg (yoy)
Net revenue 268 238
12.4
195
37.3
730 563
29.6
Cost of revenue 153 150
2.2
119
28.8
443 339
30.6
Gross profit 115 89
29.6
76
50.6
287 224
28.1
S&M expenses 17 17
0.8
14
20.3
51 45
13.1
G&A expenses 28 27
7.0
20
45.8
81 59
37.8
EBITDA 70 45
53.5
43
62.7
155 120
29.0
Depreciation 16 14
14.0
11
49.6
42 30
39.5
EBIT 54 31
71.0
32
67.1
113 90
25.4
Other income 7 7 4 20 11Forex gain/(loss) (4) 6 4 9 14PBT 56 45
25.1
39
43.0
142 116
22.6
Income tax 16 13
25.0
3
389.2
41 9
361.1
PAT 41 32
25.2
36
12.0
101 107
(5.7)
EPS (
`
) 10.1 8.1
25.2
9.1
11.9
25.1 26.6
(5.6)
Gross margin (%) 42.9 37.2
570bp
39.1
378bp
39.3 39.8
(46)bp
EBITDA margin (%) 26.0 19.0
696bp
21.9
406bp
21.3 21.4
(10)bp
EBIT margin (%) 20.1 13.2
688bp
16.5
357bp
15.4 15.9
(51)bp
PAT margin (%) 15.0 12.9
214bp
17.9
(291)bp
13.3 18.1
(485)bp
Source: Company, Angel Research
Exhibit 2:
Actual vs. Angel estimates
(
`
cr) Actual Estimate
% Var.
Net revenue
268 269
(0.6)EBITDA margin (%) 26.0 21.9 409bp
PAT
41 25
62.0
Source: Company, Angel Research
INR depreciation – The only reason to cheer
For 3QFY2012, Persistent reported revenue of US$51.7mn, up merely 0.3% qoq.The company’s offshore billing rate was almost flat qoq at US$3,778 ppm;however, again in this quarter, the company witnessed a decline in onsite billingrates to US$12,387 ppm from US$12,665 ppm due to higher fixed pricecontracts. As such, management indicated that pricing will be stable going ahead.In INR terms, revenue growth was robust at 12.4% qoq to
`
268cr – higher growthas against USD revenue due to qoq steep INR depreciation against USD in3QFY2012.
Persistent | 3QFY2012
Result Update
January 24, 2012
3
Exhibit 3:
Trend in revenue growth (qoq)
Source: Company, Angel Research
Exhibit 4:
Trend in billing rates (qoq)
Source: Company, Angel Research
Industry wise, the company’s growth was led by the lifesciences and healthcaresegment (contributing 12.5% to revenue), revenue of which grew by 18.2% qoq.Revenue from the telecom and wireless segment (contributing 20.4% to revenue)declined by 7.0% qoq, majorly led by European clients. The anchor industry segment – infrastructure and systems (contributed 67.1% to revenue) – also did notshow traction in its business as revenue from this industry declined by 0.2%.
Exhibit 5:
Growth trend in industry segments
% to revenue
% chg (qoq) % chg (yoy)
Infrastructure and systems 67.1
(0.2) 22.7
Telecom and wireless 20.4
(7.0) 6.0
Lifesciences and healthcare 12.5
18.2 28.8
Source: Company, Angel Research
Geography wise, the company’s growth was again led by the U.S., though revenuefrom this geography grew by merely 1.3%. Revenue from all other geographiesregistered a decline sequentially.
43.247.050.051.551.76.78.86.33.10.30246810303438424650543QFY114QFY111QFY122QFY123QFY12
( % ) ( U S $ m n )
Revenue (US$mn)qoq growth (%)12,89612,74613,03312,66512,3873,6613,7233,7703,771 3,778-2,0004,0006,0008,00010,00012,00014,0003QFY114QFY111QFY122QFY123QFY12
( U S $ / p p m )
OnsiteOffshore
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