Persistent Systems - 4QFY2013 Result Update - Angel Broking

Persistent Systems (Persistent) reported its 4QFY2013 results, which came largely in line with our expectations. The Management remains confident of FY2014 with the deal pipeline being strong and remains focused on increasing the share of IP-led revenues in its portfolio with incremental growth being led by the key focus areas of cloud, analytics and collaboration. We maintain our Accumulate rating on the stock.

Quarterly highlights: For 4QFY2013, Persistent reported a revenue of US$62.1mn, up 2.2% qoq. In INR terms, the revenue came in at Rs. 334cr, up just 0.3% qoq. The company's EBITDA margin grew by 12bp qoq to 24.9% with headwinds of rupee appreciation and higher G&A expenses and tailwinds of decline in doubtful debt provisions and flat employee costs even with number of employees going up. The PAT stood at Rs. 52cr, up 5% qoq, aided by a forex gain of Rs. 4.1cr as against Rs. 1.8cr in 3QFY2013.

Outlook and valuation: Persistent's Management sounded confident of the company's growth exceeding Nasscom's growth estimate of 12-14% yoy in FY2014, based on the healthy pipeline and plans to continue investments in new technologies and sales efforts, to take advantage of improved demand. It indicated that the demand pattern, over the past two years, has changed with deal sizes getting smaller but the quantum of deals having risen significantly, particularly in the products/ platforms space. Lower costs of development are encouraging more players to develop products, which in turn is throwing up a much larger number of such deals on the table. Over FY2013-15, the company is expected to record a USD and INR revenue CAGR of 12.3% and 11.8%, respectively. At the current market price of Rs. 545, the stock is trading at 9.9x FY2014E and 9.2x FY2015E EPS. We value the stock at 10x FY2015E EPS, which gives us a target price of Rs. 593, and maintain an Accumulate rating on the stock.

Source : Equity Bulls

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