Persistent Systems (PSYS IN) - Soft quarter; margin expansion a key positive - CSEC Research

Soft quarter; margin expansion a key positive

- In 4QFY17, Persistent consolidated revenue stood at INR 7,271mn (-2.5%QoQ, +7.4%YoY). In dollar terms, the revenue stood at USD 109mn (-0.9%QoQ, +8.6%YoY). The Services business saw the growth of 0.3% QoQ, while IP Led business declined 3.9% QoQ. Revenue declined mainly on account of seasonality in the IBM business adversely impacting IP led growth and weakness among top 10 clients.

- EBITDA stood at INR 1,188mn (+0.1% QoQ & +10.6% YoY), with EBITDA margin at 16.3% (+42bps QoQ). APAT came in at INR 728mn (-11.1% QoQ), with PAT margin at 10% (-100bps QoQ).

- Amongst geographies; revenue from America business declined by 1% QoQ followed by Europe -0.9% QoQ. Amongst segment; Enterprise segment grew 3.9% QoQ while independent software vendor declined 2.3% QoQ. IP-led declined 3.7% QoQ owing to seasonal weakness in IBM business offset by growth in Accelerite business, which grew 10.6% QoQ. Digital continued to grow strong with 10.8% QoQ growth.

Valuation: The management highlighted a strong pipeline in IBM-IoT business and expects IP-Led business & digital to lead the growth for the company along with margin expansion, aided by non-linearity in the business. At CMP, the stock is currently trading at 113.5x/11.8x of FY18E/19E EPS. We value the stock 14X on FY19E earnings, arriving at a target price of INR 688 per share. We maintain BUY rating on stock. Risks: Unfavorable cross currency movement, Cuts in client spending and volatility in IP led business.

Shares of PERSISTENT SYSTEMS LTD. was last trading in BSE at Rs.580 as compared to the previous close of Rs. 587.15. The total number of shares traded during the day was 10631 in over 595 trades.

The stock hit an intraday high of Rs. 589.95 and intraday low of 577.25. The net turnover during the day was Rs. 6205024.

Source : Equity Bulls

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