Buy Persistent; target of Rs 540: Prabhudas Lilladher

“Persistent Systems’ (Persistent’s) Q2FY13 results gave strong beat to consensus/PLe estimates. We were ~3%/10% higher than consensus for revenue/PAT growth. IP-led revenue growth has given cushion to margin headwinds from wage hike. The management commentary was upbeat for the demand environment and deal pipeline. The success of differentiated S&M approach, partnership model, IPinvestments and capitalizing on inorganic opportunity has pushed the performance envelope.”

“Persistent’s Q2FY13 results have exceeded PLe/Consensus expectation on all counts. Revenue grew 8.7% QoQ to Rs3,269m (PLe: Rs3,159m Cons: Rs3,091m) and 9.4% QoQ in USD terms to $60m (PLe: US$57.4m). EBITDA margins expanded by 41bps to 27.2% (PLe: 25.8%, Cons: 24.6%) despite a salary hike (~360bps) & currency impact (~60bps) countervailed by IP-revenue, higher utilization and realization. EPS grew by 7.4% QoQ to Rs11.58 (PLe: Rs11.46, Cons: Rs10.15). The strategic initiatives by the company have started yielding results. Key initiatives in recent time are 1) equipping S&M team with understanding of technology 2) Organic & inorganic route for IP accumulations (rCloud, location-based software) 3) Acquiring “End of Lifecycle” products (IBM-TNMP) and 4) Sell with Partners (IBM, Salesforce, Oracle, Cisco). We expect initiatives around IP to boost margin higher-than-peer.”

“The company’s performance got boosted by IPrevenue. The management expects growth in H2FY13 to get better. We expect consensus to upgrade their revenue/margin estimates by ~4%/~10% in line with our expectation. We reiterate buy rating, with TP to Rs540, 10x FY13e earnings estimates (roll our model forward for FY14),” says Prabhudas Lilladher research report.

Public holding more than 90% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.