CSEC Research: Earnings Update - Persistent

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Recovery in the top customer a key positive

·         In 1QFY16, revenue in USD terms fell by 1.84% QoQ to USD 78.61mn; the revenue growth was pared by weak performance in services revenue which de-grew 2.2% QoQ; while IP led revenue was flat at USD 14.48mn.

·         In terms of geography, RoW grew 17.1% QoQ, while Europe and North America de-grew by 9% QoQ and 2.9% QoQ respectively. In terms of business offering, Enterprise segment was flat 0.3% QoQ to USD 19.3mn; ISV segment witnessed de-growth of 3.1% QoQ to USD44.8mn. In terms of vertical offering, Financial services grew by 9.4% QoQ; while Telecom, Infrastructure & Systems and Life Science & Healthcare de-grew by 10.2%, 2.3% and 1.8% QoQ.

·         Revenue from top client grew by 7.8% QoQ, snapping its 4 consecutive quarter of decline. Top 2-5 clients were flat and revenues from top 6-10 clients grew by 3.6% QoQ.

Valuation: At CMP of INR 655.3, the stock is currently trading at 17.5x/14.9x of FY16E/17E EPS. We value the stock at INR 659 per share, implying a FY17 P/E multiple of 15x FY17E EPS. We continue to maintain MARKETPERFOMERrating.

Risks: Unfavorable cross currency movement cuts in client spending & volatility in IP led business.

Regards

CSEC Research