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Persistent Systems Limited declared its Q4FY11 results. The results met our
revenue expectations for the quarter but not our profitability estimates, as
EBITDA was well below expectations. The drop seems to be due to a onetime
provisioning for bad debts, and may not continue in future.
Consolidated revenues for the quarter reported a growth of 9.2% q‐o‐q and
stood at Rs 2,128.2 mn. EBITDA declined by 6.7% q‐o‐q at Rs 467.80 mn with
a fall of 366 bps in the EBITDA margins to 21.12%. The fall in the EBITDA
and EBITDA margin is mainly attributable to the faster increase in personnel
and operating expenditure which stood at 68% of sales as compared to 65%
previous quarter and at 63% in the corresponding quarter of the previous
year.
Key takeaways
Reasonably well FY12 guidance: Management has given revenue guidance of
USD 220 million for FY12 which is approximately 30% up on y‐o‐y basis.
Further, the EBITDA and PBT margins are expected to sustain at current
levels of 24% & 19% respectively. The revenues will be driven by 2‐3%
growth in realization & the remaining will come from higher volumes.
JV with Sprint Nextel: Persistent has entered into a 26% JV with Sprint Nextel.
Sprint Nextel is the 3rd largest telecom company in the USA. It provides wire
connection services across the world. Persistent will look after the same
services in India.
Bullish on 4 core areas & IP led services: Management expects good traction
from 4 core areas (Cloud, Mobility, BI & Analytics & Collaboration) which
are expected to contribute around 43%‐45% in FY12. Additionally, the IP led
services has shown good growth in Q4FY11, contributing 10% to the topline.
This business has contributed around 8.8% in FY11 compared to 7.3% in
FY10. Going forward, in FY12 the management expects this business to reach
20% in next 3 to 5 years. The new areas and IP led services will provide good
support to margin levels.
Justifiable fall on margin front: EBITDA and EBITDA margin seems
disappointing to investors but it is fairly justified by the management. Impact
was largely due to one time provisioning of bad debts which had impact of
~ Rs 37cr. & the wage hike that added to the downfall of margin.
Outlook
Going ahead we are confident on growth story of the company. It will be
mainly driven by 4 core areas & the high margin IP Led Services. We
maintain our FY12 revenue estimates which are more or less at par with
guidance given by management.
Valuation
At the CMP of Rs 393 the stock is trading at a PE of 11.2x and 10.1x its FY12E
and FY13E earnings of Rs 38.8 and Rs 51.4. We maintain our “accumulate”
recommendation with a target price of Rs 460. The target price of Rs 460
translates into a potential upside of 17%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Persistent Systems Limited declared its Q4FY11 results. The results met our
revenue expectations for the quarter but not our profitability estimates, as
EBITDA was well below expectations. The drop seems to be due to a onetime
provisioning for bad debts, and may not continue in future.
Consolidated revenues for the quarter reported a growth of 9.2% q‐o‐q and
stood at Rs 2,128.2 mn. EBITDA declined by 6.7% q‐o‐q at Rs 467.80 mn with
a fall of 366 bps in the EBITDA margins to 21.12%. The fall in the EBITDA
and EBITDA margin is mainly attributable to the faster increase in personnel
and operating expenditure which stood at 68% of sales as compared to 65%
previous quarter and at 63% in the corresponding quarter of the previous
year.
Key takeaways
Reasonably well FY12 guidance: Management has given revenue guidance of
USD 220 million for FY12 which is approximately 30% up on y‐o‐y basis.
Further, the EBITDA and PBT margins are expected to sustain at current
levels of 24% & 19% respectively. The revenues will be driven by 2‐3%
growth in realization & the remaining will come from higher volumes.
JV with Sprint Nextel: Persistent has entered into a 26% JV with Sprint Nextel.
Sprint Nextel is the 3rd largest telecom company in the USA. It provides wire
connection services across the world. Persistent will look after the same
services in India.
Bullish on 4 core areas & IP led services: Management expects good traction
from 4 core areas (Cloud, Mobility, BI & Analytics & Collaboration) which
are expected to contribute around 43%‐45% in FY12. Additionally, the IP led
services has shown good growth in Q4FY11, contributing 10% to the topline.
This business has contributed around 8.8% in FY11 compared to 7.3% in
FY10. Going forward, in FY12 the management expects this business to reach
20% in next 3 to 5 years. The new areas and IP led services will provide good
support to margin levels.
Justifiable fall on margin front: EBITDA and EBITDA margin seems
disappointing to investors but it is fairly justified by the management. Impact
was largely due to one time provisioning of bad debts which had impact of
~ Rs 37cr. & the wage hike that added to the downfall of margin.
Outlook
Going ahead we are confident on growth story of the company. It will be
mainly driven by 4 core areas & the high margin IP Led Services. We
maintain our FY12 revenue estimates which are more or less at par with
guidance given by management.
Valuation
At the CMP of Rs 393 the stock is trading at a PE of 11.2x and 10.1x its FY12E
and FY13E earnings of Rs 38.8 and Rs 51.4. We maintain our “accumulate”
recommendation with a target price of Rs 460. The target price of Rs 460
translates into a potential upside of 17%.
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