Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ideal base now for FY12
4Q ahead of our expectations, ex-spike in non-core expenses
Positives: Strong guidance and hiring, reduced wage pressure
With several levers available, FY12 margins likely to stay flat y-y
Continue to see stock as play on shifts in software industry; BUY
Strong 4Q ex-non-core expenses
Persistent’s 4QFY11 revenue and EPS
were ahead of our estimates. EBITDA
margin fell 400bps q-q (BNPP: -230bps),
but a jump in treasury income and lower
taxes led the EPS beat. The margin
decline was due to a spike in largely nonrecurring
items (provision for bad debts
and M&A-related legal and professional
charges), which had a 220bps adverse
impact. Had these items been at the same
level as in 3Q, EBITDA margin would
have been broadly in line with our
expectation. We believe the company
took a conservative accounting view of
these items - the provisions could reverse as these are related to paying
customers, while the M&A expenses could have been capitalised.
Most things are going right
1) 4Q USD revenue growth was strong at 8.8% q-q (BNPP: 6.7%, 7.7%
organic), while FY12 guidance is for USD220m (29% y-y, BNPP:
USD220m, USD212m or 24.5% y-y organic). We see upside to the FY12
revenue guidance given healthy demand and Persistent’s now-stronger
sales team. Moreover, the 4Q net hiring of 900 (660 organic) alone was
higher than the entire 9MFY11 addition. 2) Persistent expects to maintain
its FY12 PBT margin at ~20% (BNPP: 20.1%). Wage hikes are likely to
be moderate (7-8% vs twin increases of 10-12.5% in FY11) and would be
effective only for nine months. Furthermore, strong entry-level hiring
(1,000 of the expected 2,300 gross adds in FY12) increased high-margin
IP revenue (likely to be over 10%, vs 8.7% of revenue in FY11); higher
billing rates and utilisations are added margin levers. 3) We are
encouraged that employee costs were contained to within our
expectations and that attrition on a quarterly annualised basis dropped to
less than 15% (from 19-20% in 3Q).
BUY: If no scale, go for niche
At a time when mid-cap IT services’ businesses are coming into question,
we believe Persistent is one company that stands out because of its
unique strengths. We see the stock as a play on the structural shifts that
the software industry is undergoing (cloud computing, mobility, analytics
and collaboration), and thus as a key long-term portfolio addition. Risks:
macro and FX uncertainty, unexpected wage pressure.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ideal base now for FY12
4Q ahead of our expectations, ex-spike in non-core expenses
Positives: Strong guidance and hiring, reduced wage pressure
With several levers available, FY12 margins likely to stay flat y-y
Continue to see stock as play on shifts in software industry; BUY
Strong 4Q ex-non-core expenses
Persistent’s 4QFY11 revenue and EPS
were ahead of our estimates. EBITDA
margin fell 400bps q-q (BNPP: -230bps),
but a jump in treasury income and lower
taxes led the EPS beat. The margin
decline was due to a spike in largely nonrecurring
items (provision for bad debts
and M&A-related legal and professional
charges), which had a 220bps adverse
impact. Had these items been at the same
level as in 3Q, EBITDA margin would
have been broadly in line with our
expectation. We believe the company
took a conservative accounting view of
these items - the provisions could reverse as these are related to paying
customers, while the M&A expenses could have been capitalised.
Most things are going right
1) 4Q USD revenue growth was strong at 8.8% q-q (BNPP: 6.7%, 7.7%
organic), while FY12 guidance is for USD220m (29% y-y, BNPP:
USD220m, USD212m or 24.5% y-y organic). We see upside to the FY12
revenue guidance given healthy demand and Persistent’s now-stronger
sales team. Moreover, the 4Q net hiring of 900 (660 organic) alone was
higher than the entire 9MFY11 addition. 2) Persistent expects to maintain
its FY12 PBT margin at ~20% (BNPP: 20.1%). Wage hikes are likely to
be moderate (7-8% vs twin increases of 10-12.5% in FY11) and would be
effective only for nine months. Furthermore, strong entry-level hiring
(1,000 of the expected 2,300 gross adds in FY12) increased high-margin
IP revenue (likely to be over 10%, vs 8.7% of revenue in FY11); higher
billing rates and utilisations are added margin levers. 3) We are
encouraged that employee costs were contained to within our
expectations and that attrition on a quarterly annualised basis dropped to
less than 15% (from 19-20% in 3Q).
BUY: If no scale, go for niche
At a time when mid-cap IT services’ businesses are coming into question,
we believe Persistent is one company that stands out because of its
unique strengths. We see the stock as a play on the structural shifts that
the software industry is undergoing (cloud computing, mobility, analytics
and collaboration), and thus as a key long-term portfolio addition. Risks:
macro and FX uncertainty, unexpected wage pressure.
No comments:
Post a Comment