Persistent Systems - 1QFY2013 Result Update - Angel Broking

Persistent Systems (Persistent) reported its 1QFY2013 results which were inline on the revenue front but disappointed on the operating front. Management indicated that Persistent will surpass Nasscom's industry growth forecast of 11-14% yoy (USD revenue) for FY2013 with incremental growth being led by growth from the key focus areas of cloud, analytics and collaboration. Persistent is into pure-play offshore product development (OPD), which is highly discretionary in nature and, thus, exposes the company to higher amount of risk as posed to its peers if situation deteriorates further. We maintain our Neutral rating on the stock.

Quarterly highlights: For 1QFY2013, Persistent reported revenue of US$54.9mn, up 1.3% qoq. The company's revenue from IP-led services grew by 16% qoq to US$7.6mn. The company's EBITDA margin declined by 175bp qoq to 26.8%, due to ~420bp qoq onsite wage hike impact which partially got absorbed by ~270bp qoq benefits from INR depreciation.

Outlook and valuation: Management remained confident of growth from the key focus areas of cloud, analytics and collaboration and business from partnerships with SalesForce.com, IBM and Cisco. Management indicated that it expects the company to grow higher than Nasscom's estimate of 11-14% yoy in FY2013 but, taking into account sluggish 1QFY2013 USD revenue growth as well as higher ask rate of minimum 3.2% qoq growth in the next three quarters to achieve 11-14%, we expect USD revenue growth of ~8% qoq for FY2013. Over FY2012-14E, the company is expected to record USD and INR revenue CAGR of 13.2% and 13.0%, respectively. We expect the company to record EBITDA and PAT CAGR of 15.6% and 11.8%, respectively, over FY2012-14E. At the CMP of Rs.394, the stock is trading at 8.9x FY2014E EPS of Rs.44.2. We value the stock at 9x FY2014E EPS, which gives us a target price of Rs.398, and maintain Neutral rating on the stock.

Source : Equity Bulls

Keywords