Persistent Systems - 1QFY2014 Result Review - Angel Broking

Persistent Systems reported its 1QFY2014 results which were below our expectations on the revenue and operating margin front but was better than expectations on the bottomline front because of robust forex gain. The dollar revenues came in at US$63mn, up 1.5% qoq, led by 4.5% qoq revenue growth from IT services revenue which came in at US$53.5mn. IP led revenues, which has been volatile for the company, declined by 13% qoq (24% yoy growth) to US$9.5mn. The recently acquired HPCA business will now start contributing to the company's topline due to some documentation delay and will boost IP-led revenues further. In INR terms, revenues came in at Rs. 357cr, up 7.0%. The company's EBITDA margin declined considerably by ~310bp qoq to 21.7%, due to onsite wage hike of ~3.5% and visa costs. PAT stood at Rs. 57cr, up 10% qoq aided by forex gain of Rs. 18cr as against Rs. 4cr in 4QFY2013. The management remains confident of FY2014 with deal pipeline being strong and remains focused on increasing the share of IP-led revenues in its portfolio.

We currently maintain Neutral rating on the stock and would closely watch out for management commentary on operating margins as 2QFY2014 will have headwind of offshore wage hike. We would revise our target price and rating post the earnings conference call.

Source : Equity Bulls

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