FY15 growth to be better than FY14: Persistent

Software solutions provider Persistent Systems’ second quarter consolidated net profit grew by 3.6 percent sequentially (up 17.3 percent year-on-year) to Rs 71.3 crore on strong revenue growth. Consolidated revenue rose by 6.7 percent quarter-on-quarter, and dollar revenue climbed 5 percent on sequential basis. However, the company’s EBITDA margin stood at 15.5 percent, down 110 bps compared to 16.6 percent in previous quarter.

Discussing the company’s earnings details, Anand Deshpande, CMD & CEO, Persistent Systems, said the margins were under pressure due to wage hike and higher SG&A (selling, general and administration) expenses. He expects FY15 growth to be better than FY14.

Below is the transcript of Anand Deshpande's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Sonia: Although your dollar revenue growth has been strong at 5 percent. It is your margins that have been a disappointment this time, coming in at 20.6 versus close to 22 percent last time. Can you explain the reason for that and do you expect to see more pressure on the margins going ahead?A: The revenues were USD 76.32 million which is Rs 464 crore in rupee terms; margins were under pressure because of the salary hikes that happened during the quarter for all employees including those in the USD. The other impact for the margins was because of higher sales and marketing expense that we have been planning on. So the selling, general and administrative expense (SG&A) is higher this quarter as compared to the previous quarter. There are some elements that will not get repeated but by and large this is inline with what was expected and what we have been suggesting is that as we are seeing some uptick because of forex numbers, we have been using that for increasing sales and marketing which would be the right thing to do. So profit after tax (PAT) and the profit before tax (PBT) margins continue to remain quite stable despite the EBITDA being little lower.

Sonia: Your services business has picked up quite a bit with more than 5 percent growth on a quarter on quarter basis. Is that a sustainable growth for your and what are the triggers for services business going ahead?A: Services business grew 5.6 percent and a lot of it was driven by newer platform related technologies that we have been focusing on with partners. Yes, we expect that this is sustainable. However, what we have said for the last several quarters has been that the business mix in the market are changing, large number of companies that we work with in the way we have worked with them is changing quite dramatically and this is going to create little bit of a turbulence as we move forward. We have anticipated this change and we have been investing in platforms, partnerships and also in new business line which we refer to as enterprise digital transformation and during the quarter we were able to make significant gains in positioning by defining a category and also demonstrating how to go about digital transformation. Sonia: For the second half of the year what kind of growth are you looking at because in the first half you have grown about 13.5 percent in revenues which is lower than your FY14 run rate and even margins things are not going as planned. So, in the second half what kind of growth do you envisage?A: We are on track for maintaining this year’s growth to be better than last year’s growth. There are several things that we have done during the first half of the year including investments in technology and various other things that will help us in the second half. If you look at it, part of the reason also is that the IP growth has been slower during this quarter and thus part of the volatility that we have talked about in the past. The fact that IP did not grow as much also contributes to lower margins in some sense, so overall I am not too concerned about the quarter’s number, I thought this was a very efficient quarter in the sense that by and large things stacked well across all the parameters that we track.