Persistent Systems - Decent show; prudent investments to continue:: Edelweiss, PDF link

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

Persistent Systems’ (Persistent) Q2FY15 revenue at USD76.3mn (up 5.0% QoQ) was marginally below Street’s 6.2% estimate. EBITDA margin at 20.6%, fell 120bps QoQ versus 22.5% estimate due to higher provision for doubtful debt. The company continued its investment drive as it ramped up sales and business development headcount (S&BD) by 10 to 212. While services revenue catapulted a robust 5.6%, IP-led revenue grew a mere 2.9% QoQ. Though we retain our positive stance on Persistent owing to the improved traction in services segment and its expertise in digital technologies, we cut FY15E USD revenue growth to 15% from 16% due to lower-than-estimated H1FY15 performance. This, along with weak EBITDA margin leads to 7.4% and 1.3% cut in our FY15E and FY16E EPS, respectively, despite upward revision in our USD/INR assumption to INR60/59 from INR58/56 for FY15/16.

Revenue marginally lower; provisions take a toll on margin

Revenue growth of 5.0% was driven by surge in services segment, which grew 5.6% QoQ, while IP-led revenue rose a mere 2.9% (tends to be lumpy). EBITDA margin declined 120bps QoQ to 20.6% due to provisions for doubtful debts versus reversals in Q1FY15. Persistent expects FY15 growth to surpass Nasscom’s estimate (13-15%) riding a strong deal pipeline in both outsourced product development (OPD) and IP-led segments.

Investment ramp up to continue; to garner higher growth

Persistent has been investing in digital technologies and in sales efforts (S&BD headcount up from 128 in Q2FY14 to 212 in Q2FY15). The 5.6% QoQ growth in services segment (highest in past several quarters) is a result of the same. With investments expected to continue and weak margin in Q2FY15 we revise down FY15 and FY16 EBITDA margin estimates to 22.1% and 25.2% from 24.7% and 26.1%, respectively.

LINK

https://www.edelweiss.in/research/Persistent-Systems--Decent-show;-prudent-investments-to-continue;-result-update-Q2FY15;-Buy/27310.html