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Research
PINC Analyst Meet Note - Persistent Systems
Posted On : 2011-12-21 19:51:34( TIMEZONE : IST )
We attended the Annual Investors Day of Persistent Systems at Pune campus. Following are the key takeaways:
Focus on cloud computing, collaborative, analytics & mobility
Persistent has created its niche in emerging technologies which places it in a strong position among the mid cap firms. The emerging technologies are expected to grow faster than usual service lines over the next few years.
"Sell with" strategy to expand client base
Persistent has partnered with large firms like IBM, CISCO and salesforce.com to offer services to larger corporations. This provides an entry point to bigger clients. The margin of partnership business is higher than the rest of the company.
IP led services on track
Investment in IP services are on track and revenues from this nonlinear business is expected to be on growth path. The margins on IP business are 10-20% higher than other businesses.
FY12 revenue guidance and PAT guidance lowered
Earlier revenue guidance for FY12 was USD220mn, which has been lowered to USD205-210mn due to uncertain environment. The company expects flattish revenue in Q3FY12. Growth in OPD is expected to slowdown due to delays in decision making. Earlier, PAT guidance was similar to FY11 that now has been revised downwards in the range of Rs1,250-1,350mn (FY11 PAT Rs1,397mn).
Higher hedges will restrict benefit from rupee depreciation
The company has hedges worth USD103.5mn including USD30.5mn at 47.7 for Q4FY12, USD23.75mn (@INR/USD 47.85), USD25.75mn (@INR/USD 48.06) and USD23.50mn (@INR/USD 51.78) for Q1, Q2 and Q3 respectively. Due to this the company won't gain much benefits of rupee depreciation in the near term.
Outlook & Recommendation – Persistent has revised downwards its revenue & PAT guidance for FY12 but a significant portion of this is already factored in the estimates due to expectation of slowdown in decision making related to discretionary IT spending. We revise EPS estimates downward by 2% and 9% for FY12 and FY13 respectively. However, the company will continue to attract premium compared to its peers due to niche service offerings & marquee clientele. We downgrade our rating to "Accumulate" with a revised target price of Rs349 based on 11x FY13E EPS.
