Q2-FY11 earnings updates on Persistent Systems Ltd :: Keynote

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 Q2-FY11 earnings updates on Persistent Systems Ltd.

Key highlights of Q2-FY11 results of Persistent Systems Ltd.

·         Persistent Systems Ltd. (PSL) reported topline growth of 3.3% q-o-q; broken down into 3.4% by volumes, 0.7% due to currency movements and -0.8% due to reduced IP contribution. Management commented on the possible lumpiness in IP-led business growth, going forward.

·         America’s contribution showed 50bps increase q-o-q, with Europe showing 5.8% q-o-q de-growth. On the other hand, A-Pac registered a healthy growth of 3.6% q-o-q.  We view the above as a mixed signal, considering Europe to be a high growth opportunity.

·         PSL acquired 24 new customers while registering 94.6% repeat business. Revenue contribution from the largest client increased by 270bps to 16.3%. Going forward, management expects additional thrust from the largest client, factoring the proposed ramp-up.

·         Contribution by verticals remained stable with Infrastructure commanding 69.4% followed by Telecom (20%) and Life-Sciences (10.6%).

·         PSL witnessed significant margin pressures due to reduced offshoring (-90bps q-o-q) and, lower utilization rates (-390bps q-o-q) on account of increased fresher hiring.  We view these effects as transient, at best and, foresee improved margins with increased fresher productivity post-training.  However, attrition rates (18.6% Q2FY11 +8.1% y-o-y) remain a major concern.

·         Operational levers underperformed substantially with 7.4% % q-o-q increase in Cash Conversion Cycle (Days Sales Outstanding +0.2% q-o-q, Days Receivables -6.9% q-o-q).