Persistent Systems: PSYS IN, Mkt Cap USD0.4b, CMP INR525, Buy

31 Jul 09:57 AM            

EBITDA margin disappoints; currency gains to be reinvested - EBITDA margin disappoints: Revenue grew 1.5% QoQ to USD63m, in line with our estimate. However, EBITDA margin declined 310bp QoQ to 21.8%, well below our estimate of 24.3%, on account of higher S&M (110bp) and travel-related expenses (150bp). PAT grew 4.8% QoQ to INR571m, higher than our estimate of INR530m, driven by forex gain of INR183m. - revenues:?Strong growth in product engineering Linear revenues grew 4.5% QoQ (higher than our estimate of 1.5% QoQ) to USD53.5m, while IP-led revenues declined 13% QoQ to USD9.5m (v/s our estimate of USD11.4m). The company’s outlook of healthy growth in Product Engineering is a positive. - Reinvesting currency gains: PSYS sees itself very well positioned with respect to its SMAC offering. It has taken the opportunity of favorable currency to invest aggressively in the sales team. Sales personnel increased 20% QoQ to 119, with more additions expected, going forward. This is driving a cut in our margin estimates (of 310bp/140bp) for FY14/FY15. - 2H to be better than 1H: The Product Engineering business is witnessing good momentum and IP-led revenues will add to that, helping to achieve better performance in 2H than in 1H. Revenues from HP client automation should flow in largely from the next quarter, and that along with healthy traction in Product Engineering segment keeps growth outlook sanguine. - Valuation and view: We expect PSYS to grow its USD revenues at a CAGR of 15% over FY13-15 and EPS at a CAGR of 16.5%. The stock trades at 9.8x FY14E and 8.3x FY15E EPS. Maintain Buy with a target price of INR575 (9x FY15E EPS).

Back       Home
You Tube Facebook Tweeter Blogger