Persistent’s Mar’17 quarter results are a disappointment on the overall revenue front despite the strong performance in the Digital business(+10.8% QoQ) on account of continuous sluggishness in the Services business(-0.9% QoQ). EBITDA margins are broadly in line albeit aided by certain costs controls (and potential reversals, we await details on the conference call). Net profits at Rs 728 is below estimates on account of forex losses (V/s gains in Dec’16 quarter). We await more clarity on the trajectory of the IBM-IoT Alliance business in FY18, given that the company has to curtail its revenue growth guidance from this segment in FY17 but has recently been sounding very confident around business traction in recent months.
We see at least 4-5% cuts to our FY18/19E EPS of Rs 46/51.6 respectively. At CMP of Rs 570, the stock trades at ~12.4x/11x FY18/19E P/E. We currently have a HOLD rating on the stock with a TP of Rs 660.
Mar’17 quarter results
- Persistent reported revenues at US$ 109 mn (-0.9% QoQ,+8.6% YoY) below estimates (Emkay est:+1.9% QoQ) with IP revenues declining by 4% QoQ as Linear revenues are nearly flat QoQ
- EBITDA margins at 16.3%, up 40 bps sequentially (V/s our expectations of ~20 bps sequential increase) however appear to have been helped by some cost reversals (reflecting in sequential decline in Employee Costs despite ~230 people QoQ addition).
- Profits at Rs 728 mn (-11% QoQ, -9% YoY) is below Emkay estimates on account of lower than expected other income as operational performance is just about in line
Other highlights
- Linear PES business:+0.2% QoQ,
- IP Revenues:-4% QoQ
Revenues by segments
- Services: -0.9%QoQ
- Digital: 10.8 % QoQ
- Alliance: -10.6% QoQ ( weak seasonality in the IBM IoT business)
- Accelerite: +10.6% QoQ
Revenue by Delivery
- Onsite: 3.2% QoQ(continues the trend of onsite led growth in Linear business)
- Offshore: -1.6% QoQ
- IP Led: -4% QoQ
Headcount: 9,460 up 231 people sequentially
Mar’17 quarter result summary:
|
In Rs mn
|
Q4FY17A
|
Q3FY17
|
QoQ (%)
|
Q4FY16
|
YoY (%)
|
Q4FY17E
|
|
Net sales US$ mn
|
109.0
|
110.0
|
-0.9
|
100.4
|
8.6
|
112.1
|
|
Net sales
|
7,271
|
7,455
|
-2.5
|
6,771
|
7.4
|
7,469
|
|
Operating expenses
|
6,084
|
6,269
|
5,697
|
6,265
|
||
|
EBITDA
|
1,188
|
1,187
|
0.1
|
1,074
|
10.6
|
1,204
|
|
Margins (%)
|
16.3
|
15.9
|
40
|
15.9
|
50
|
16.1
|
|
Depreciation
|
394
|
387
|
256
|
386
|
||
|
EBIT
|
793
|
800
|
-0.8
|
818
|
-3.0
|
818
|
|
Margins (%)
|
10.9
|
10.7
|
20
|
12.1
|
10.9
|
|
|
Interest received
|
0
|
0
|
0.0
|
0
|
||
|
Other income
|
143
|
318
|
210
|
-31.8
|
228
|
|
|
Pre-tax profit
|
937
|
1,118
|
-16.2
|
1,028
|
-8.9
|
1,046
|
|
Tax provided
|
209
|
299
|
-30.2
|
220
|
-5.2
|
272
|
|
Profit after tax
|
728
|
819
|
808
|
774
|
||
|
Emkay Net profit
|
728
|
819
|
-11.1
|
808
|
-9.9
|
774
|
|
EPS, Rs
|
9.1
|
10.2
|
|
80.0
|
|
9.7
|