Hold Persistent Systems; target of Rs 425: Emkay

“Persistent Systems, After mixed performance on the revenue front through recent quarters, Persistent reported a 9.5% sequential increase in Sep’12 qtr revenues to US$ 60.1 mn aided by ~49% QoQ increase in IP revenues (% of IP revenues increased by ~500 bps sequentially to 18.9%) which also helped improve margins by ~40 bps despite ~360 bps headwinds from offshore wage hikes implemented from July’12 onwards. Profits at Rs 446 mn (+7.3% QoQ) came in ahead of expectations helped by better than expected revenue/margin performance. We also highlight that growth picked up somewhat in the linear OPD business as well at ~3% QoQ after muted performance in recent qtrs. Utilization improved by 360 bps sequentially to near historical levels at 77.7% however we point out that headcount continued to decline for the 4th quarter in a row with co ending Sep’12 qtr with an overall HC of ~6,370.”

“After very sluggish performances in the linear OPD business in recent times, Sep’12 qtr saw some revival from the segment with management citing an increased pipeline which is helped by increased geographical and sales footprint. IP business which has continued to grown strongly in recent quarters albeit on a low base driven primarily by co’s take over of several end of life products/acquisitions and increased success through the ‘Sell with’ business. After rationalizing both technical and overall HC through recent quarters and improving utilization levels to nearly historical highs, co indicated that it expects to add ~600 people in H2FY13.”

“We raise our FY13/14E earnings higher by ~6% each to Rs 45.8/46.7 (V/s Rs 43.2/44.2 earlier) driven by Q2 beat and increased revenue estimates (yet again helped by recent tuck in moves). While we see stock trading strong in the near term, we await more consistency in financial performance to turn constructive on the stock. HOLD, TP Rs 425 (V/s Rs 390 earlier),” says Emkay Global Financial Services research report.  

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