Persistent Systems - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, Persistent Systems (Persistent) reported better-than-expected numbers on the operational as well as bottom-line front. Management sounded confident of surpassing Nasscom's industry growth forecast of 11-14% yoy (USD revenue) for FY2013 with majority of incremental work expected to come from the U.S. Persistent is into pure-play offshore product development (OPD), which is highly discretionary in nature and, thus, poses a risk for the company if any slowdown kicks in the economy. We maintain our Accumulate rating on the stock.

Quarterly highlights: For 4QFY2012, Persistent reported revenue of US$54.2mn, up 4.9% qoq. The company's revenue from IP-led services grew by 38% qoq to US$6.6mn. In INR terms, revenue came in at Rs.271cr, up merely 1.1% qoq. The company's EBITDA and EBIT margins increased by 257bp and 164bp qoq to 28.6% and 21.7%, respectively, majorly driven by operational efficiencies and robust growth in IP-led revenue, which commands higher margin.

Outlook and valuation: Persistent, due to its niche focus on OPD, is exposed to higher risks if any slowdown kicks in developed economies. However, management indicated that it expects the company to grow higher than Nasscom's estimate of 11-14% yoy in FY2013. Over FY2012-14E, the company is expected to record USD and INR revenue CAGR of 9.8% and 10.6%, respectively. The company expects EBITDA margin to remain stable yoy for FY2013. We expect margin to inch up to 23.3% for FY2013 from 23.2% in FY2012 and then drop to 22.4% in FY2014. Over FY2012-14E, we expect the company to record EBITDA and PAT CAGR of 8.6% and 6.3%, respectively. At the CMP of Rs.335, the stock is trading at 8.4x FY2014E EPS of Rs.40.1. We value the stock at 9x FY2014E EPS, which gives us a target price of Rs.361, and maintain our Accumulate rating on the stock.

Source : Equity Bulls

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