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Margin and EPS guidance unlikely to be met
A healthy 9% QoQ topline growth driven by 8% volume
growth was negated by the 410bps drop in EBITDA margin as
the company reported a 9% PAT fall. With another round of
wage increases planned in Q2FY12 and limited levers to
counter wage pressure, the company is unlikely to sustain
EBITDA margin at FY11 levels as it has guided for. The
company has guided for a topline of $220mn for FY12
(including $8mn from acquisition), which is effectively a
growth rate of 13% from Q4FY11 annualized run rate of
$188mn on an organic basis. We have increased our topline
estimates for FY12E and FY13E, but maintained our FY13E
EPS. Niche positioning, competition with captive units of
ISVs/diversified IT service players and worsening supply side
issues makes us negative about the stock and we maintain
our SELL rating.
Volume-driven topline growth: Persistent Systems reported
a topline growth of 9% QoQ backed by volume growth of 8%
and realization growth of 1% on a blended basis.
29% topline growth in FY12 guided: Company has guided
for revenue of $220mn in FY12, implying a 29% topline
growth over FY11. However, on a closer look it is only a 13%
growth from the Q4FY11 run rate of $188mn if we remove the
revenue contributed by inorganic growth.
Profitability to be under pressure: EBITDA margin declined
410bps signifying the margin pressure the company is facing.
The increase in IP-driven revenue and fixed price projects have
not helped the margins. With more fresher intake planned for
FY12, utilization levels are likely to stay low. We believe the
company lacks levers to counter the wage pressure. We have
revised our growth numbers to reflect the guidance, but have
maintained our FY13E EPS and target price of Rs366. We
maintain our negative stance about the company and
reiterate Sell.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Margin and EPS guidance unlikely to be met
A healthy 9% QoQ topline growth driven by 8% volume
growth was negated by the 410bps drop in EBITDA margin as
the company reported a 9% PAT fall. With another round of
wage increases planned in Q2FY12 and limited levers to
counter wage pressure, the company is unlikely to sustain
EBITDA margin at FY11 levels as it has guided for. The
company has guided for a topline of $220mn for FY12
(including $8mn from acquisition), which is effectively a
growth rate of 13% from Q4FY11 annualized run rate of
$188mn on an organic basis. We have increased our topline
estimates for FY12E and FY13E, but maintained our FY13E
EPS. Niche positioning, competition with captive units of
ISVs/diversified IT service players and worsening supply side
issues makes us negative about the stock and we maintain
our SELL rating.
Volume-driven topline growth: Persistent Systems reported
a topline growth of 9% QoQ backed by volume growth of 8%
and realization growth of 1% on a blended basis.
29% topline growth in FY12 guided: Company has guided
for revenue of $220mn in FY12, implying a 29% topline
growth over FY11. However, on a closer look it is only a 13%
growth from the Q4FY11 run rate of $188mn if we remove the
revenue contributed by inorganic growth.
Profitability to be under pressure: EBITDA margin declined
410bps signifying the margin pressure the company is facing.
The increase in IP-driven revenue and fixed price projects have
not helped the margins. With more fresher intake planned for
FY12, utilization levels are likely to stay low. We believe the
company lacks levers to counter the wage pressure. We have
revised our growth numbers to reflect the guidance, but have
maintained our FY13E EPS and target price of Rs366. We
maintain our negative stance about the company and
reiterate Sell.
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