Persistent Systems reported higher than expected sequential revenue growth of 4.92% to $54.20mn mainly backed by growth in IP revenues and contribution from newly acquired ‘Openwave’ ($1.14mn). IP revenue grew by 38.00% QoQ and 35.00% YoY to $6.55mn. Persistent’s consistent endeavor to develop and acquire IPs in the field of traditional and modern technology areas and in the four key thirst areas of cloud, collaboration, mobility and analytics seems to be started yielding results. Even after having pressure of unfavorable INR movement, operating margin improve by 258bps sequentially to 25.85% mainly due to realization improvement driven by higher IP revenue and lower cost. The company able to reduce both operating and S&M cost by man power optimization and other cost cutting initiatives. But, net margin remain unchanged at 15.23% due to higher forex loss."
"The company’s utilization was at historic low levels of 71.70% mainly due to denominator effect. The company has added 1000 fresher in the full year of FY12 more tilted towards first half. But, total net manpower addition was only 270 people for the full financial year and this we believe, is a part of employee pyramid optimization initiatives taken by the management to reduce cost and increase productivity in tough times. Attrition is also started tapering off with the decrease in demand scenario and expected to reduce further over a period of time. Although, Persistent is expected to continue to work on high attrition levels compare to industry standards due to niche service focused business model and comparatively high quality manpower strength."
"We upgrade our USD term topline growth estimates to 13% from 10% earlier and expecting USD term revenue to reach to $235mn in FY13. Persistent’s unmatched expertise, partnership with global technology giants and lower product lifecycle would help the company to grow its traditional OPD business in tough times. Moreover, newly developed IPs would also help to grow nonlinear businesses simultaneously. But, due to the project specific business model and increasing dependence on non-linearity QoQ aberration is expected going forward. At the current market price of Rs 350, Persistent is trading at 8x of FY13 expected EPS of Rs 41.55. We upgrade our recommendation to HOLD with target price of Rs 370," says Way2Wealth research report
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