Persistent Systems - Q1FY18 Result Update Rating - NEUTRAL - Arihant Capital Markets Ltd

Revenues increased by 0.1% QoQ and 3.7% YoY:

Persistent Systems posted steady numbers for the quarter ended June 2017 with Rupee revenues increased by 0.1% QoQ and by 3.7% on YoY basis to Rs 728 cr. Persistent Systems USD Revenue grew by 3.6% QoQ and by 7.8% YoY to US$ 112.97 Million. Profit Before tax dipped by 3% QoQ and increased 5% YoY to Rs 102 cr and Profit after tax increased by 3.2% QoQ and 2.4% YoY to Rs 75 cr.

Segment-wise performance:

Growth during the quarter was driven by Alliance (IBM) and Services segment which were up 9.6% and 5.0% QoQ, respectively. Digital and Accelerite segments declined sequentially. However, we would like to note that these businesses are lumpy in nature and should be viewed over a longer time frame as these will have quarterly fluctuations. Persistent expects better margins on YoY basis in constant currency (CC) in FY18. Company has announced acquisition of PARX Werk AG (PARX), a Salesforce platinum partner with revenue base of CHF 8mn in CY16.

Key Wins during the Quarter:

Adoption of IoT & new technologies:

- Building a robotic concierge using IBM Watson to engage customers in real estate showrooms for a Malaysian property developer.

- Leveraging artificial intelligence and machine learning to develop a global regulatory science and policy (GRSP) intelligence application based on IBM Watson that will respond to inquiries using a chatbot service for a pharma company.

- Leveraging cognitive computing and machine learning to improve efficiency of the trade operations group for a large global bank.

- Global deployment and configuration of IBM Watson IoT tools for a global automotive supplier.

- Developing an IoT based automation solution using Concert IoT platform from Accelerite for a US based lighting and electric company.

Valuation:

Company is confident of improving its growth from i) strong momentum seen in Digital and Accelerite even though 1Q was weak, ii) IBM partnership continuing on expected lines on both product and services side of the IBM Watson deal and iii) IP led and software driven delivery in recent deal wins in services segment. Persistent continues to invest in S&M efforts (sales team up by 17 QoQ) and in retraining employees in newer technologies. We remain confident of margin improvement in FY19 to 16% as incremental revenues will be driven by IP-lead / software or platform based delivery. We retain NETURAL with target price of Rs 675 with a PE of 15x to FY19E EPS of Rs 45.

Shares of PERSISTENT SYSTEMS LTD. was last trading in BSE at Rs.635.9 as compared to the previous close of Rs. 656.5. The total number of shares traded during the day was 10757 in over 1044 trades.

The stock hit an intraday high of Rs. 658.5 and intraday low of 632.4. The net turnover during the day was Rs. 6860713.

Source : Equity Bulls

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