Persistent Systems (ADD) - Quarterly estimates - ICICISecurities

- Expect consolidated USD revenue to grow 3.0% QoQ to USD64mn. Linear business revenues are expected to grow 2.7% QoQ and IP business is expected to contribute US$11.4mn revenues (10.9mn in Q4FY13). HPCA should contribute to revenues from Q2FY14 though a higher contribution should materialize in the latter half of the year as it sells new licenses and/or current licenses at clients get renewed (which will accrue to Persistent).

- Expect EBIT margin to go up by 50bps QoQ to 19% primarily due to ~4% QoQ rupee depreciation against US$ partially offset by 1) Onsite salary increases of 3-4% 2) Increased Visa costs as Persistent has applied for 400 visas 3) amortization cost related to the HPCA acquisition. Persistent would be paying HP a total consideration of US$15mn over 3 years. Persistent is capitalizing the amount and amortizing it over a period of 6 years and 4) Other costs related to the HPCA acquisition. Persistent has taken 22 employees (all based in Bangalore) on board with respect to the HPCA acquisition and another 10 sales people in the US - the cost of which will get reflected from Q1FY14 itself.

- Translation gains will help PAT during Q1FY14 given significant depreciation of Re vs. US$ on closing basis.

- PAT likely to go up 12.6% QoQ on better margins QoQ, higher other income led by higher forex gains QoQ despite higher tax rate at 30% vs. 28.1% in Q4FY13.

- Key factors to watch: i) Performance in focus areas, ii) revenue growth from top clients, iii) end-of-life products' acquisitions and iv) traction in sell-with initiatives.

Source : Equity Bulls

Keywords