Earnings Update - Persistent System (PSYS IN) - Impressive performance in seasonally weak quarter - CSEC Research

- In 3QFY17, Persistent consolidated revenue stood at INR 7,455mn (+5.9%QoQ, +25.9.7%YoY). In dollar terms, the revenue stood at USD 110mn (+5.9%QoQ, +25.9%YoY). The growth was led by IP Led and healthy traction among top 10 clients.

- EBITDA stood at INR 1,187mn (+7.1% QoQ & +6.9% YoY), with EBITDA margin at 15.9% (+20bps QoQ). EBITDA margin improved due to increase in blended utilization by 470 bps QoQ. APAT came in at INR 819mn (+11.4% QoQ & 5.7% YoY), with PAT margin at 11% (+60bps QoQ).

- Amongst geographies: growth was led by the US (+6.1% QoQ), while Europe and RoW witnessed declined by 9.1% QoQ/0.3QoQ, respectively. Enterprise segment grew 9.5% QoQ while independent software vendor remained muted QoQ in line with the company's strategy to focus on top account and prune loss-making ones. IP-led increased 6.9% QoQ on account of seasonally higher contribution from IBM alliance and improved performance in Accelerite business, which grew 2.2% QoQ on top of 7.7% in Q2FY17.

Valuation Management expects services business to bottom out and see an uptick in coming quarters owing to its conscious effort to exit low margin accounts and focus on only top 20 accounts. At CMP, the stock is currently trading at 13.6x/11.8x of FY18E/19E EPS. We value the stock 14P/E on FY19E earnings with a target price at INR 736 per share and upgrade BUY (earlier OUTPERFORMER) rating on stocks.

Risks: Unfavorable cross currency movement cuts in client spending & volatility in IP led business.

Shares of PERSISTENT SYSTEMS LTD. was last trading in BSE at Rs.605.95 as compared to the previous close of Rs. 619.45. The total number of shares traded during the day was 11441 in over 770 trades.

The stock hit an intraday high of Rs. 623 and intraday low of 603. The net turnover during the day was Rs. 6956117.

Source : Equity Bulls

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