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Research
Buy Persistent Systems - Dolat Capital
Posted On : 2012-04-24 10:59:53( TIMEZONE : IST )
View: Post earnings call we maintain our positive stance on the company on account of inline numbers, incremental focus on non linear - IP led revenues, sustained profitability outlook and attractive valuation (6.6x of FY14E Earnings).
Persistent Systems' operating results for Q4FY12 were inline with expectations with a topline growth of 1.1% at Rs.2.7bn as against our estimate of Rs.2.7bn. Revenue growth was largely driven by IP led efforts - contributing 12% to revenues (up 38% QoQ) also includes Openwave numbers. Non IP revenues were up by just 1.5% QoQ all on better pricing of 1.7% as volumes remained flat for the quarter.
The company has indicated better than industry growth (NASSCOM projects 11-14%) for FY13 alongwith margin maintenance at FY12 levels of 19.6% at PBT levels. The company has not given quantitative guidance and has earmarked a soft fresh hiring plan of 350 employees in FY13. It will review salary hikes post Q2FY13 and have indicated better reward than peers.
We believe that the company going forward would rely less on fresh hiring as it used to be till FY10. We expect 15% volume growth for the company in view of challenging demand in the discretionary (new development) budgets. It would also focus on non linear opportunities and improved efficiency; incrementally.
It continues to remain focused on its next generation technologies and expect its sales strategy along with opportunities in 'Bigdata' to drive the revenue growth in the coming period.
We remain positive on the stock for its attractive valuations of 6.6 (x) for FY14E EPS of Rs.49.4 with a BUY rating on the stock with a target of Rs.444 valued at 9x of its FY14E earnings.
Financial Highlights:
Persistent Systems' operating results for Q4FY12 were inline with expectations with a topline growth of 1.1% at Rs.2.7bn as against our estimate of Rs.2.7bn (Revenues up 4.9% in USD terms). Revenue growth was largely driven by IP led efforts - contributing 12% to revenues (up 38% QoQ). Non IP revenues were up by just 1.5% QoQ all on better pricing of 1.7% as volumes remained flat for the quarter.
EBITDA grew 11% QoQ at Rs.773mn on lower travel cost and flat non IP expenses (employee count down by 78 QoQ) thus resulting in better operating margins of 28.5% (up 260bps) for the quarter - DE at Rs.677mn.
PAT grew by 1.6% qoq to Rs.412mn ahead of our estimate of Rs.398mn as gains on operating margin got negated to certain extent on higher depreciation and weak other income (loss of Rs.34mn as against gain of Rs.27mn).
The company managed to achieve its PBT margin maintenance but fell short of its USD revenue guidance of 29% (actual achieved 22%) for FY12.
The company has named Mr. Rohit Kamat as the Chief Financial Officer with effect from April 23, 2012, in place of Mr. Rajesh Ghonasgi who has resigned citing personal reasons.
Valuation & Outlook:
We believe the series of efforts such as acquisition of S&M team of Agilent & Openwave location services, sales with strategy (pre-emptive effort to deploy codeveloped products), and investment in next generation technologies would lead into higher than industry growth rate. We remain positive on the stock for its attractive valuations of 6.6 (x) for FY14E EPS of Rs.49.4 with a BUY rating on the stock with a target of Rs.444 valued at 9x of its FY14E earnings.
