Maintain 'buy' on Persistent Systems - TP Rs.600 - Geojit BNP Paribas Financial Services

- The company reported weaker than 3QFY13 results on lumpy IP revenue and seasonal weakness.

- USD revenue growth at 1.2% qoq was flat organically and missed analysts' expectations on lumpy IP revenue and seasonal weakness.

- But revenue in rupee terms was in line on better realized forex rates.

- EBITDA margin was down 2.5 percent point qoq on higher than expected SG&A expenses.

- Net profit missed analysts' and street estimates by 4-5%.

- IP revenue was down 2.6% qoq in 3QFY13 against 48.6% increase in 2Q.

- It seems that lumpy IP revenue, a high base and seasonality led to the 3Q revenue miss.

- However, the management sees better than industry growth in FY13 and FY14, noting 50% yoy pipeline growth, potential gains from new senior level and sales hires and synergistic acquisitions.

- After the strong recent run -up in stock price, the negative reaction to the result was not surprising.

- However, it seems that IP revenue that contributes 18% of total revenue remains a key EPS driver despite its volatility.

- Among the positives, the company is expected to further improve yield qoq despite the 12%gain in 2Q.

- It added 349 employees after four quarters of muted hiring, indicating reviving core business demand.

- Acquisitions continue a strategy of capability building and adding to other recent niche buy outs.

- A negative is, the largest client contributed 21.1% of 3Q revenue (up from 15.9% yoy. This is risky and suggests that the company needs to diversify its client base.

Source : Equity Bulls

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