New clients to aid revenue growth in FY16: Persistent Sys

Anand Deshpande,CMD & CEO, Persistent Systems is not overly worried with the company missing its revenue guidance. The miss was basically because due to change in priorities by some of their large and old clients. However, going forward he is optimistic on growth after adding 51 new accounts in fourth quarter.Persistent Systems missed street expectations on the topline front but beat expectations on the bottomline front. Net profit grew 2.1 percent sequentially to Rs 76.05 crore and revenue increased by 0.6 percent to Rs 497.4 crore during January-March quarter.The company is hopeful of maintaining around 4-5 revenue growth in each quarter, says Deshpande. On the EBITDA margin front too he does not see wage hikes impacting first quarter of FY16.Attrition rate of around 15 percent is not unusual, says Deshpande and expects it to be at similar levels for the next year or so.

Below is the transcript of Anand Deshpande\\'s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: Your dollar revenue growth was 0.6 percent, lower than what the street was estimating, can you give us an indication of any pressures that you are facing either in terms of different geographies or different verticals and what could the revenue growth be in the quarters to come?A: Yes, our quarterly revenue number for the quarter was USD 80.03 million, which was 0.6 percent growth quarter-on-quarter (Q-o-Q). Most of the pressure this quarter was from existing accounts, which have been with us for a long time. Many of them are under pressure due to various conditions specifically related to them and that had caused some of them to change their plans, which in turn caused some cuts to happen on some of the projects that we were working on. In general, the market condition for many of the new businesses that we have has been pretty good. We have a large number of new accounts that we were able to open this quarter. We had 51 new accounts and a lot of the activity that we have around newer technologies and enterprise digital is looking quite good. So we are quite optimistic about the growth on the numbers, it is just the challenges on the existing business that put pressure on the numbers.Latha: What about the margin picture under pressure?A: We are seeing lot of activity in the market and so we have increased our Selling, General and Administrative (SG&A) in some of our investments in research and development (R&D). Overall the margins -- if you look at it on a quarter-on-quarter (Q-o-Q) basis, they have been at Rs 76 crore for the profit after tax (PAT) which was a growth of 2.1 percent as compared to the 0.6 percent on the topline.Sonia: On the EBITDA margin front, you clocked in about 22.2 percent this quarter. Can you quantify for us, how much the impact of the potential wage hike and the H1B visa cost could be on your margins in the next quarter?A: That is hard to say at the moment but there will be a couple of percentage points on the margins that will come from some of these hikes but the hikes are mainly supposed to happen only in July. So some of that will not come into this quarter. Some visa costs of course will come in this quarter and some  have already been factored in because a lot of those were filed in this quarter.

There is nothing very unusual that is expected in Q1 that will have a margin pressure. Some of the numbers will come into Q2 but again if the growth numbers catch on by then, I don’t think margin will see an big impact for the immediate next two quarters.Latha: What is your confidence that revenue will catch up because your topline apparently has also giving you declining revenues, what is the confidence rate you have in terms of revenue growth, you missed the 15 percent guidance as well?A: The growth numbers in terms of the new business that we have been pursuing around enterprise digital which is starting to happen in a big way. We are seeing the new accounts that we have closed. Unfortunately, a lot of them start small and the large customer is fairly large. It is very hard to predict exactly where that will end during the quarter. If things should hold on steady, we should have a pretty good growth during the quarter but again it is very hard to say under these conditions what might happen with some of the large customers that we have.Latha: What about attrition, that has jumped up to 15.5, which gives you the fear that perhaps margins will continue to be under pressure since you have to be competitive with the wages?A: That is correct but 15 is still within the range of where we can operate the business, so it is not unusual. I think it will remain around that rate for the next year or so. There is a lot of activity in the market, which is all good. There is a lot of discussion and action in the market. So that also causes the attrition to go up.Sonia: You are seeing a very good growth in your enterprise segment, it grew about 10 percent in the quarter gone by, can you tell us what the growth path could look like in Q1 and especially in the enterprise digital transformation segment?A: We are seeing a lot of discussion in both the platform led business and the enterprise which leads into the enterprise market. Many of our platform partners are doing quite well and we are seeing a very good double digit month-on-month growth on some of these accounts, which is what is causing the growth to happen and they are leading us into fairly large enterprises where we are doing some very innovative solutions for these companies around enterprise digital.

We have also spent a lot of time and energy in the last year in building IPN technology, which allows us to get into these accounts very efficiently and be able to deliver on a very quick short three-six week cycles which is where the market is moving at this time.Latha: Cannot you give us a numerical revenue guidance at all for FY16?A: I wish I could give you  but I am sure we will do a lot better than what we have done during the year. It is very hard for me to predict the large companies that we work with and what will happen to them.Latha: Even directionally, will it be more than 12.5, will it be upto 15?A: We are definitely working on high numbers for next year as well. Essentially there are two trends that are happening in a market. One is that because of newer technology changes, work content shrinks because if you move into the cloud and analytics, you don’t need as many people to do the same work and that creates some kind of an uncertainty in the market in terms of the ability to define exactly how many people would be required for the work. Work is growing, it is just that people for those work don’t need to be that many.Sonia: Could you at least tell us if you could get back to that 4-5 percent quarterly revenue growth that you have been seeing for the last many quarters?A: We hope we can have it this quarter as well. There is no reason to say why it should not happen, there is nothing inherently wrong. If things work right, we should be there.