Buy Persistent Systems; target of Rs 520: Dolat Capital

“Persistent clocked revenues growth of 9.4% QoQ to USD 60mn (DE at USD 57mn) driven by 3% volume growth in OPD segment and 49% growth in IP revenues (19% of rev contribution). It has acquired another company in the cloud based disaster management services, Doyenz - with annual revenue run rate of USD 4mn (consolidation effective Oct). PSL has raised its confidence to outpace the NASSCOM’s industry revenue growth outlook of 14% for FY13. The company expect strong momentum in H2 over H1 and expects sustained traction in OPD segment as well as IP segment (revenue flow could be erratic by virtue of nature of the business).”

“The company has managed to improve on OPM by 70bps despite the 10% wage hike offered to offshore employee base (impact of over 300bps) on account of better IP revenue mix, improved utilization (up 330bps to 77.7%), pricing gain of 2% and decline in total headcount (down 166 to 6370). Going forward it expects to maintain stable profitability despite sustained investments in sales and strong back ended hiring (to hire 500 fresher in H2). PAT up 7.4% QoQ at Rs 446mn.”

“We maintain our positive stance on the company on account of strong numbers, incremental boost up in the non linear-IP led revenues, sustained profitability outlook and attractive valuation (7.5x of FY14E Earnings). We raise our Revenue/EPS estimates by 3%/10% accounting for strong growth strides in the high margin IP revenues and maintain buy rating with a revised Target Price of Rs 520, valued at 9x of FY14E earnings,” says Dolat Capital.

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