Persistent Systems - Q1FY14 Results - Nirmal Bang

Q1FY14 quarter results were mixed wherein revenues were in line with our expectations which grew by 7% QoQ; however margins disappointed which witnessed pressure of 320 bps QoQ due to onsite wage hikes and higher visa costs. The management has cited better growth in H2FY14 on the back of increased demand momentum in Product engineering in North America and uptick in IP led revenues. At CMP the stock is trading at a P/E of 9.4x/8.6x its FY14E/FY15E earnings and investors can accumulate the stock on dips since outlook continuous to be positive.

Quarter highlights:

Revenues in USD terms grew 1.5% QoQ to $ 63.03mn driven by 4.5% growth in product engineering business. This business witnessed 3% growth in volume and 1.5% growth in realisation. However, IP revenues dipped 12.9% QoQ/ 24% growth YoY and contributed 15.1% to total revenues from 17.5% in Q4FY13.

Revenues in INR terms grew by 7% QoQ and 18.8% YoY at Rs.357.3 crore.

EBIDTA margins were down by 320 bps QoQ to 21.7% erasing the currency gain of 180 bps due to higher visa costs, addition in sales team in the US and onsite wage hikes. Company is giving salary hikes to offshore employees of ~ 8-9% in the current quarter which we believe would keep the margins under pressure in Q2FY14 as well.

Adjusted PAT for the quarter (forex gain of Rs.18.3 cr/Rs.4.2 crore in Q1FY14 and Q4FY13 respectively) was down by 9.9% QoQ to Rs 44.05 crore.

IP revenues have been subdued for the last 3 quarters and management is optimum of better Q3 and Q4FY14 on this front.

Source : Equity Bulls

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