Sell Persistent Systems; target of Rs 630: Emkay Global

Emkay Global's report on Persistent SystemsOperating margins continue to decline• Persistent reported inline revenues at US$ 83 mn (+5.5% QoQ, +8.7% YoY) aided by consolidation of RGEN Solutions; Linear business grew 5.9% QoQ (ex of RGen Linear business grew by mere 1% QoQ) while IP revenues declined by 7% QoQ• EBITDA margins at 18.7% declined by 70bps QoQ impacted adversely by wage hikes despite tailwinds from currency depreciation, absence of visa expenses, improved utilization and growth leverage; Company’s operating margins declined by ~900bps over past 7 quarters• Net profits at Rs 718 mn (+7%QoQ, +0.7% YoY) were aided by higher other income and lower taxes; operating cash flow in H1FY16 declined by 39% YoY despite 4% growth in operating profits• Cut our ‘below consensus’ FY16/17E EPS by 1.3%/4% respectively; retain SELL with revised TP of Rs 630 on expensive valuations and low revenue predictability. We see downside risk to management’s outlook of matching industry growth rates, says Emkay Global research report.For all recommendations, click hereDisclaimer: 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.

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