Persistent Systems Ltd. share price target

Persistent (PSYS) reported a 4% QoQ decline in USD revenue in 2QFY19 below estimates as seasonal weakness in IP business was exacerbated by an unanticipated project foreclosure (USD c.1mn impact). Management exuded confidence in growth recovering over 2HFY19 3Q is seasonally strong for the IP business. However, we expect the quarterly volatility to continue given the weak trajectory in the core services business (43% of revenues); growing reliance on the IBM ecosystem is an added risk. Thus, while the currency tailwinds have helped minimise the flow-through of 2QFY19 revenue miss on margins/EPS changes to our FY19/FY20 EPS estimates are minor (1.7%/-0.5%) the low predictability of revenues could...

PSYS reported USD revenue de-growth of 4.3% QoQ to USD 118mn (DCMe: USD 121mn) due to seasonally soft quarter in IP business and unanticipated closure of one project which had already been staffed. INR revenue grew 0.2% QoQ to ` 8.36bn (DCMe: ` 8.48bn) supported by INR depreciation. EBIT margin improved 44bps QoQ to 12.4% (DCMe: 11%) led by INR depreciation and operational efficiency. PAT improved 0.9% QoQ to ` 881mn (DCMe: ` 812mn)...

PSYS 2QFY19 revenues declined 4.3% QoQ to USD118m (est. We expected IBM IoT resale to be impacted by seasonality. However, Digital failed to recover from its sluggishness led by a project closure and shifting to offshore, which further added to the 22 October 2018 disappointment. Digital revenue at USD26m was flattish sequentially, and grew by 17% YoY in 1HFY19, slowing down from its >30% run-rate. EBITDA margins expanded by 40bp QoQ to 17.2% despite wage hikes and decline in revenue, ahead of our estimate by 150bp (expected to decline 110bp QoQ). The beat was led by INR depreciation and higher offshoring. PAT at INR881m grew by 1% QoQ (est. of 7% QoQ) led by lower revenue and other income, and higher ETR. The company made several Digital, (b) changing sales incentives, (c) sharpening its product portfolio, (d) creating common engines to drive focus and sales, and (e) ramping up hiring.

EBITDA Margins improved by 239bps QoQ largely supported by lower G&A; expenses (down 120bps QoQ). Better business mix, improvement in utilisation, higher IP deals & higher onsite utilisation would drive PSYS' profit margins going forward. Revenue and PAT are expected to grow at 14% and 20% CAGR over FY1820E. While EBITDA Margins are expected to improve from 15.5% in FY18 to...

Maintain BUY with TP of Rs 940, at 17x FY20E-EPS. Persistent Systems (PSYS) posted strong rev growth (Alliance business-led comprising 32.1% of rev) and in-line operating performance. Revenue came at USD 123.6mn, 5.7/9.4% QoQ/YoY led by sharp growth in Alliance business (USD 11.3mn incremental QoQ with USD 6mn incremental from re-seller business). Digital (21.4% of rev) declined (impacted by delay in new projects), however sharp recovery expected ahead. EBITDA% came at 16.8%, +203bps QoQ supported by gross margin expansion of 95bps QoQ and G&A; leverage of 110bps QoQ. APAT came at Rs 0.87bn (Rs 0.88bn est) impacted by higher ETR.

US$ revenues grew 5.7% QoQ to $123.6 million, above our 3% QoQ growth and $120.4 million estimate. Higher-than-expected growth was due to growth in IP led wherein revenues increased...

Sector: IT /Mid-Cap | Earnings Update 1QFY19 Background: Persistent Systems is one of the leading outsourced product development (OPD) companies in India. 1QFY19: Revenue from business offering mix: Services (72.6%) & IP led business (27.4%). The company has industry expertise in ISV (38.8%), Enterprise (33.8%) and IP Led (27.4%). Company has strong workforce of 8,902 employees. The company's business is spread across North America (79.7%), Europe (12%), India (6.1%) and RoW (2.2%). Company earns revenue from global delivery centers (31.1%), India (41.5%) and IP Led (27.4%). Total active clients stood at 619 including services and IP led business. Company's top client accounts 23.8% in revenues, top 5 (43.8%) and top 10 (53.7%). Segment revenue mix: Services (41.5%), Digital (21.4%), Alliance (32.1%) and Accelerite (5.0%)....

PSYS reported revenue growth of 5.4% YoY in FY18; software services revenue (contri. 74%) grew by 8.9% YoY in FY18 to ` 22.6bn compared to ` 20.7bn in the previous year, while IP led revenue which contributes 26% of the total revenue declined 3.6% YoY to ` 7,766mn compared to ` 8,060mn in FY17. Increase in earnings by 7% YoY to ` 40.4 during the...

Maintain BUY with TP of Rs 840, at 16x FY20E EPS. Persistent posted rev decline (in-line) and margin contraction with lower IP revenue. Revenue stood at USD 117mn, -4.6%/+7.3% QoQ/YoY impacted by USD 6.8mn sequential decline in IP revenue (22.3% of 4Q rev). Services (46% of rev) and Digital (24% of rev) posted strong growth of 3.6% QoQ and 4.1% QoQ, respectively, while Accelerite (6% of rev) and Alliance business (24% of rev) declined.

US$ revenues declined 4.6% QoQ to $117 million, above our $115.4 million estimate. As anticipated, IP Led revenues declined 20.6% sequentially to $26.1 million (vs. our estimate of | 24.9 million) while...