Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
FX-led beat, slowing growth
RESULTS REVIEW
Poor 2Q operationally, EPS propped by forex gains
Persistent reported a disappointing 2QFY12 with revenue and EBITDA
below our estimate, while forex gains and lower taxes drove an EPS beat.
USD revenue was up a mere 3.1% q-q (BNPP: 8.4%), while the EBITDA
margin of 18.7% (BNPP: 19.4%) missed our estimate on continued wage
pressure despite an incremental 2.5% USD/INR gain than we modelled.
SUMMARY
High implied asking rates reflect challenge of meeting guidance
Management left its FY12 guidance unchanged (USD220m in revenue, EPS
similar to INR35 in FY11). However, it noted increased demand volatility
and lack of revenue visibility. This implies that about 9.5% q-q revenue
growth and 14.5% q-q profit growth is needed in 2HFY12 to meet the
guidance – a very challenging task, in our view.
VALUATION
Significant bottom-line impact if demand worsens or INR reverses
Among other factors, management also pointed to client M&A for the
weak revenue. However, the bigger picture is that growth is now coming
from short-term contracts and large deals are taking longer to close.
Persistent also has, at least temporarily, a smaller sales force (113 vs 119
in 1Q) as it re-aligns its team to increase depth in its focus areas. Also,
attrition remains high (17.7%, 18.4% in 1Q), while utilizations can improve
only by 4Q given the record number (632) of new graduates that joined in
2Q. We believe the latter could lead to a significant bottom-line impact if
demand worsens and/or the USD/INR reverses. We continue to believe the
stock will be available cheaper for longer-term investors.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
FX-led beat, slowing growth
RESULTS REVIEW
Poor 2Q operationally, EPS propped by forex gains
Persistent reported a disappointing 2QFY12 with revenue and EBITDA
below our estimate, while forex gains and lower taxes drove an EPS beat.
USD revenue was up a mere 3.1% q-q (BNPP: 8.4%), while the EBITDA
margin of 18.7% (BNPP: 19.4%) missed our estimate on continued wage
pressure despite an incremental 2.5% USD/INR gain than we modelled.
SUMMARY
High implied asking rates reflect challenge of meeting guidance
Management left its FY12 guidance unchanged (USD220m in revenue, EPS
similar to INR35 in FY11). However, it noted increased demand volatility
and lack of revenue visibility. This implies that about 9.5% q-q revenue
growth and 14.5% q-q profit growth is needed in 2HFY12 to meet the
guidance – a very challenging task, in our view.
VALUATION
Significant bottom-line impact if demand worsens or INR reverses
Among other factors, management also pointed to client M&A for the
weak revenue. However, the bigger picture is that growth is now coming
from short-term contracts and large deals are taking longer to close.
Persistent also has, at least temporarily, a smaller sales force (113 vs 119
in 1Q) as it re-aligns its team to increase depth in its focus areas. Also,
attrition remains high (17.7%, 18.4% in 1Q), while utilizations can improve
only by 4Q given the record number (632) of new graduates that joined in
2Q. We believe the latter could lead to a significant bottom-line impact if
demand worsens and/or the USD/INR reverses. We continue to believe the
stock will be available cheaper for longer-term investors.
No comments:
Post a Comment