About the Company
Persistent Systems Limited provides computer programming, consultancy, and related services. It operates through three segments: Technology Services, Alliance, and Accelerite (Products). The company engages in the provision of software products, services, and technology innovation in telecom and product lifecycle management domains, and digital practice; software development, professional, and marketing services; and telecommunication API gateway for defining, exposing, controlling, and monetizing telecom services to partners and application developers, as well as an Internet of Things service creation platform that allows enterprises to add a service layer to the basic APIs exposed to by connected devices, and to expose and monetize APIs. The company serves the banking, financial services, insurance, healthcare and life sciences, industrial, and software and technology industries.
Q3 FY22 Updates
Financial Results & Highlights
Standalone Financials (In Crs) | ||||||||
Q3FY22 | Q3FY21 | YoY % | Q2FY22 | QoQ % | 9MFY22 | 9MFY21 | YoY% | |
Sales | 959 | 675 | 42.1% | 875 | 9.6% | 2634 | 1877 | 40.3% |
PBT | 224 | 161 | 39.1% | 208 | 7.7% | 653 | 478 | 36.6% |
PAT | 173 | 126 | 37.3% | 152 | 13.8% | 491 | 365 | 34.5% |
Consolidated Financials (In Crs) | ||||||||
Q3FY22 | Q3FY21 | YoY % | Q2FY22 | QoQ % | 9MFY22 | 9MFY21 | YoY% | |
Sales | 1522 | 1105 | 37.7% | 1384 | 10.0% | 4175 | 3142 | 32.9% |
PBT | 236 | 165 | 43.0% | 218 | 8.3% | 657 | 425 | 54.6% |
PAT | 176 | 121 | 45.5% | 162 | 8.6% | 489 | 313 | 56.2% |
Detailed Results:
- The company reported a phenomenal consolidated sales growth of 37% YoY in Q3 and 33% YoY in 9M.
- PAT grew 45% YoY in Q3 and 56% YoY in 9M.
- Geographical revenue breakup was:
- North America: 79.2%
- EU: 8.3%
- India: 10.9%
- RoW: 1.6%
- EBIT margin was at 14% vs 12.7% a year ago.
- Segmental growth was:
- Healthcare & life sciences – Growth of 22.3% YoY.
- BFSI – Growth of 48.9% YoY.
- Software & Hi-Tech segments- Growth of 47.9% YoY
- The total contract value (TCV) for the quarter stood at $334.3 million and annual contract value (ACV) stood at $291.3 million.
- The new booking for the quarter involved TCV of $157.6 million of which ACV component was $128.6 million.
- New employee additions of 1110 lead to the total employee base of 16,989 people due to high demand along with its acquisitions contributing to 258 employee additions.
- Utilisation rate improved by 0.2% QoQ to 83%.
- Attrition increased from 23.6% to 26.9% due to overall increase in demand on a TTM basis.
- Client concentration of top 10 customers to the total revenue decreased from 47% to 45% YoY
- The number of customers in >$5 million category went up from 22 to 24 while customers between $1 to 5 million category increased from 76 to 84.
- Avani Davda was inducted in board of directors while Werner Boeing was added to the Persistent Advisor Network.
- Interim dividend of Rs.20 per share was declared.
- Total cash and investments on the books stood at Rs.18,964 million, as on 31st December 2021
Investor Conference Call Highlights:
- The treasury income decreased from Rs. 293 million in Q2 to Rs. 251 million in Q3 due to lower investment funds due to acquisition pay-out & M2M adjustments on mutual fund investments.
- The operational CAPEX for this quarter was Rs. 277 million.
- The company gave an additional loan of Rs. 1,484 million to the ESOP trust to book shares needed for the new ESOP schemes so, the total loan to the trust stood at Rs 3,364 million.
- Persistent recently acquired SCI whose revenue was consolidated for the entire period, & Shree partners whose revenue was consolidated for the half quarter.
- The management expects the attrition rate to remain high for the coming quarters after which it is expected to moderate on account of higher base effect and introduction of freshers leading to larger supply in the industry.
- The global IT industry is expected to grow at 4.6-5% for FY22 due to customer initiatives around digital transformation and cloud computing.
- Offshore linear revenue grew by 6%, primarily on account of volume growth of 7.4%, while billing rate declined by 1.3%, primarily on account of holidays.
- On-site revenue grew by 12.5%, comprising of volume growth of 16%, while billing rate decreased by 3%, mainly due to softer revenue in Europe.
- Q3 is favorable for IP business which led to revenue growth of 15.9%
- Higher services & IP led revenue, favorable currency movement-which gave a benefit of 50 bps & improved utilization rates helped offset the impact of higher expenses led by attrition rate and ESOP’S leading to improved margins by 20 bps.
- The revenue from SCI was $3.7 million. And from Shree Partners, the revenue was about $800,000.
- The company has very little exposure towards VCs & which is also primarily because they are interested in getting access to the cutting-edge technology of the startups.
- On-site realizations have decreased due to higher share from Mexico & lower share from Europe.
- The management believes that the company is a significant player in the Indian Salesforce system & has expanded its footprint in the Indian domestic financial services market in a big way.
- Acquisition of SCI is helping the company get top banking clients & expects SCI to be a big success in the payments system business.
- The management doesn’t believe that current churn in the management team is a big concern as the proof of the pudding is in higher sales & margins.
- The contribution of IBM to the total revenues of the company was 17.5% in Q3.
- The management expects decent demand in the next 3-4 years provided the macro-economic scenario remains stable.
- The company believes that ESOP costs as a % of total revenue are expected to taper in the coming quarters.
- The management expects the Europe market to contribute well in the coming quarters due to healthy Salesforce and non-sales force pipeline.
- New deal wins include –
-
- Chosen by a leading mutual property-casualty insurer to modernize their agent-facing system design and development work for personal and commercial line products
- Chosen to partner with a unique India-based next-generation banking technology company, which is a pioneer in developing payment solutions on the NPCI platform. We’ll be partnering with them in the product development of treasury management systems, bill payment systems, and prepaid card user interface
- Chosen as a partner to establish a Canada-based development center for a leading provider of financial software for consumers and small-to-medium businesses. The engagement includes developing an end-to-end CRM portal using OpenSource technologies.
- Chosen to build the next-generation platform for a leading organization in the pharma and healthcare domain, providing end-to-end solutions for planning and executing, live and virtual events for healthcare professionals
- Chosen to build a patient 360-degree platform using the Salesforce Health Cloud for a healthcare leader, providing kidney dialysis services
- Chosen by a top 3 global education publisher for platform re-architecture, integrations, UI development, site reliability services for developing digital education content
Analyst’s View:
Persistent System is a fast-rising player in the digital transformation space. It has seen good growth in recent years and is looking to capitalize on this momentum and aim to reach revenues of $1 billion in the next 3 years. The company experienced another strong quarter, with YoY revenue growth of 37% and PAT growth of 45% in consolidated terms. It has won several large digital engineering and enterprise modernization deals. These deals reinforce the differentiated value that the company delivers to both technology companies and enterprise clients. It has achieved a rare feat of reporting sequential QoQ growth for the last 8 quarters and delivering 9% growth in the last 3 quarters. The company has recently made new acquisitions which are expected to enhance its expertise and exposure to the BFSI and cloud solutions segments. It remains to be seen whether the demand situation will persist as per management expectations, whether the company will be able to reduce its attrition rate which is above the industry average and how long will it take for the new acquisitions to get fully integrated. Nonetheless, given its fast rise in recent years, its big presence in North America & its various Alliances, and the market potential for enterprise modernization, Persistent Systems remains a key technology stock to watch out for.
Q2 FY22 Updates
Financial Results & Highlights
Standalone Financials (In Crs) | ||||||||
Q2FY22 | Q2FY21 | YoY % | Q1FY22 | QoQ % | H1FY22 | H1FY21 | YoY% | |
Sales | 875 | 617 | 41.8% | 791 | 10.6% | 1674 | 1202 | 39.3% |
PBT | 208 | 160 | 30.0% | 221 | -5.9% | 429 | 317 | 35.3% |
PAT | 152 | 118 | 28.8% | 166 | -8.4% | 318 | 239 | 33.1% |
Consolidated Financials (In Crs) | ||||||||
Q2FY22 | Q2FY21 | YoY % | Q1FY22 | QoQ % | H1FY22 | H1FY21 | YoY% | |
Sales | 1384 | 1024 | 35.2% | 1269 | 9.1% | 2652 | 2037 | 30.2% |
PBT | 218 | 136 | 60.3% | 203 | 7.4% | 421 | 260 | 61.9% |
PAT | 162 | 102 | 58.8% | 151 | 7.3% | 313 | 192 | 63.0% |
Detailed Results:
- The company reported a phenomenal sales growth of 35% YoY in Q2 and 30% YoY in H1.
- PAT grew 59% YoY in Q2 and 63% YoY in H1.
- Geographical revenue breakup was:
- North America: 78.7%
- EU: 8.8%
- India: 10.5%
- RoW: 2%
- EBIT margin was at 13.9% vs 12.1% a year ago.
- Segmental growth was:
- Healthcare & life sciences industry- growth of 47.9% YoY.
- BFSI – growth of 28.7% YoY.
- Software & Hi-Tech segments- growth of 31.9% YoY.
- The total contract value (TCV) for the quarter stood at $289 million and annual contract value (ACV) stood at $201.1 million.
- The new booking for the quarter involved TCV of $149.3 million of which ACV component was $108.8 million.
- New employee additions of 975 lead to the total employee base of 15,879 people which was up 47% YoY.
- Utilisation rate improved by 2.7% QoQ to 82.8%.
- Attrition increased from 16.6% to 23.6% due to overall increase in demand on a TTM basis.
- The company has acquired
- SCI – a North Carolina based company to expand its dedicated payments business unit
- Shree Partners – a New Jersey based company with capabilities in cloud, infrastructure & data.
- Persistent was recognized as part of the “Best Under $1 Billion” 2021 list by Forbes.
- The number of customers in >$5 million category went up from 21 to 22 while customers between $1 to 5 million category increased from 76 to 84.
Investor Conference Call Highlights:
- The treasury income increased from Rs. 256 million in Q1 to Rs. 293 million in Q2.
- The operational CAPEX for this quarter was Rs. 1,431 million.
- The company’s new wins include:
- A deal with a leading global third-party insurance administrator to establish a global technology center to deliver enterprise by digital transformation.
- A deal with a U.S. government and health savings facilitator to build and enhance the government savings platform to provide competitive advantage and accelerate revenue growth.
- A deal with a contract research organization to aggregate clinical data services in Microsoft Azure-based data lake.
- A deal with a leading U.S. health care provider to develop a patient engagement platform using leading no-code, low-code platform-based solution.
- The Company’s billing rate has decreased primarily due to change in the market mix rather than pricing pressure according to the management.
- The offshore linear revenue grew by 12.4% whereas onsite linear revenue grew by 6% due to a 2.7% reduction in billing rate due to lower revenue from Europe & higher revenue of Mexico.
- The gross margin remained the same at 33.5% since the increase in employee expense was offset by higher utilization rates.
- Due to its deal mix, the company has been able to report 6 quarters of sequential growth which might have not been possible if the company was more project-based.
- The management believes the demand will remain high for the next 2-3 years due to PS operating in industry segments that are seeing long-range and multi-year themes for digital transformation.
- The company is focusing on increasing the deployment of freshers in the ecosystem due to high demand which may lead to utilization levels rising even more from current levels.
- The management expects the pressure of higher attrition rates to persist for the next 1-2 quarters.
- The management expects its margins to be maintained in the range of 16-17% in the future.
- The company reported an impairment of $74 million however the management states that the company would not report any further impairments.
- The management expects the new ESOP plan to help in managing attrition rates and retain quality talent over the long haul.
- The management states that the stock compensation as a percentage of revenue will remain at 1.5%.
- The company has restructured one of its largest 5-year IP contracts with a party leading to a shift from revenue sharing contract to T&M contract which will lead to lower revenues but higher gross margins.
- The company’s offshore utilization has increased to maintain a high margin profile due to increasing headwinds in the form of higher salaries and attritions.
- The management is targeting margin growth of 100 to 150 basis points by the next 6-10 quarters due to increased scale and higher SG&A leverage.
- The management expects the margins to come under pressure in the next two quarters due to amortization charges of acquisitions. However, they are expecting to manage the same margins through other levers.
- The company is targeting recruitment of 2500–3000 freshers in the next 1 year.
- The management explained that cost as a percentage of revenue is dynamic as it is affected by A) onsite/offshore ratio of business B) utilization rates C) mix of laterals VS freshers
- The management aspires to achieve the $1 billion annual turnover target in the next 6-8 quarters.
- The management expects the travel costs to be 2/3rd of pre-covid levels in the next 3-4 quarters.
- The company has reported a higher business mix from India as compared to Europe due to its capabilities in its certain services like Salesforce or its engagement with financial services customers.
- The management aspires to increase its growth rate in Europe from 8.5 -10% to 12-15% through organic and inorganic routes in the future.
- The management aspires to increase its pricing in the renewal of contracts due to the high demand seen in the industry.
Analyst’s View:
Persistent System is a fast-rising player in the digital transformation space. It has seen good growth in recent years and is looking to capitalize on this momentum and aim to reach revenues of $1 billion in the next 3 years. The company experienced another strong quarter, with YoY revenue growth of 35% and PAT growth of 59% in consolidated terms. It has won several large digital engineering and enterprise modernization deals. These deals reinforce the differentiated value that the company delivers to both technology companies and enterprise clients. It has achieved a rare feat of reporting sequential QoQ growth for the last 6 quarters. The company has recently made new acquisitions which are expected to enhance its expertise and exposure to the BFSI and cloud solutions segments. It remains to be seen whether the demand situation will persist as per management expectations, whether the company will be able to reduce its attrition rate which is above the industry average and how long will it take for the new acquisitions to get fully integrated. Nonetheless, given its fast rise in recent years and its big presence in North America & its various Alliances, and the market potential for enterprise modernization, Persistent Systems remains a key technology stock to watch out for.
Q1 FY22 Updates
Financial Results & Highlights
Standalone Financials (In Crs) | |||||
Q1FY22 | Q1FY21 | YoY % | Q4FY21 | QoQ % | |
Sales | 799 | 586 | 36.51% | 720 | 11.01% |
PBT | 221 | 157 | 40.75% | 190 | 16.31% |
PAT | 166 | 121 | 36.74% | 140 | 18.57% |
Consolidated Financials (In Crs) | |||||
Q1FY22 | Q1FY21 | YoY % | Q4FY21 | QoQ % | |
Sales | 1269 | 1013 | 25.29% | 1153 | 10.03% |
PBT | 203 | 122 | 66% | 185 | 9.76% |
PAT | 151 | 90 | 68% | 138 | 9.60% |
Detailed Results:
- The company had an excellent quarter with consolidated revenue growth of 24.1% YoY and PAT growth of 68% YoY.
- USD revenues for Q1FY22 were at $166.8 million which was up 27.3% YoY.
- EBIT margin was at 13.5% in Q1 while EBIT was up 61.9% YoY.
- Industry revenue mix was at:
- BFSI: 30.8% (Up 23.5% YoY)
- HCLS: 20.5% (Up 32.1% YoY)
- Tech & Emerging: 48.7% (27.9% YoY)
- Client concentration was: Top 1 @ 17.0%, Top 5 @ 36.5% & Top 10 @ 46.7%.
- Revenue breakup in terms of business offerings was at 86.9% for Services & 13.1% for IP led.
- Geographical revenue breakup was:
- North America: 78.9%
- EU: 9.5%
- India: 9.8%
- RoW: 1.8%
- Persistent Systems was recognized as a Top 15 Service Provider in 2020 ISG Index™ for a fifth consecutive quarter.
- The company has cash & investments of Rs 19,955 Cr as of 31st June 2021.
- The company has 21 clients of > $5 million engagement and 76 clients of engagement size of $1-5 million.
- Employee strength has risen 37.6% YoY to 14,904.
Investor Conference Call Highlights:
- The Company saw consistent growth across its top account categories. The top 1 customer grew by 3.4% QoQ, Top 2-5 grew by 15.6% QoQ, Top 6-10 grew by 12% QoQ and Top 11- 20 grew by 10.9% QoQ.
- The company added 4 new customers with >$5 million engagement & 10 customers with $1-5 million engagement.
- The order booking total contract value for the quarter came in at $244.8 million. The annual contract value of this booking is $188.8 million.
- In terms of new bookings, the new business TCV in Q1 was $ 147.7 million of which the ACV component is $ 93.5 million.
- The company added 1,224 new employees in Q1.
- On the M&A front, the CAPIOT integration is ongoing, and the company has also acquired the IP & business assets of Sureline in Q1FY22.
- H1B visas impact gross margins by 40 bps QoQ. The gross margin was at 33.5% in Q1
- There was an impairment in the company’s investment in startups which resulted in a margin reduction of 60 bps.
- The treasury income for this quarter was at Rs. 25.6 Cr as against Rs. 21.1 Cr in the last quarter.
- Forex gain in Q1 was at Rs 10.9 Cr
- The operational Capex for the quarter was Rs 14.1 Cr
- Under BFSI Segment, PS was chosen as a partner to transform wholesale and commercial lending operations through the consolidation of multiple legacy systems of record for a major US bank.
- A top US State and Local Government solution provider selected PS as a partner to co-engineer a next-generation micro services-based platform and manage legacy products in a multi-year, bringing the company a multimillion-dollar deal.
- Under the Healthcare segment, PS was chosen to manage the Salesforce roadmap, implementation and provide managed services to support the proprietary inventory management platform for a large US-based pharmaceutical firm.
- Persistent was also chosen to modernize cloud security utilizing Azure to improve business safety and resilience for the European arm of a global retail pharmacy company.
- In Software, Hi-Tech & Emerging Technologies division, the company has won a multi-million dollar multi-year deal involving the implementation of the Salesforce platform to drive business growth, improve customer experience and unify business processes for an educational travel organization.
- In addition, the company have won a multi-million dollar, multi-year deal with a leader in gaming products and services to provide re-architecting, re-engineer and modernize gaming systems
- For Fifth Consecutive Quarter, Persistent was named a Top 15 Sourcing Standout for Managed Services by Global ISG Index.
- Persistent was named a Star Performer in Everest Group’s Software Product Engineering Services PEAK Matrix Assessment 2021
- CAPIOT QoQ growth has been roughly around $500K in Q1.
- The management states they expect an increase in travel expenses of about 30 to 40 basis points as countries begin to re-open in the next 2 quarters.
- Offshore utilization has stayed close to 80%.
- The management says that the impact of the wage hike will be around 250 to 275 bps which is expected to be absorbed by the high utilization levels. The final impact of the wage hike should be around 75-100 bps in the hike quarter according to the management.
- The management states that the attrition level is high for Persistent as the domains that it is operating have the highest demand currently in the tech services world.
- The management states that PS is looking to rationalize low-margin businesses, and this should result in gradual margin appreciation.
- The company has roughly hired about 400 freshers in this quarter and is planning to hire 2000 freshers in FY22.
- The management states that in India PS works with both Indian subsidiaries of its global customers and domestic NBFCs where PS is a leader in SalesForce implementation.
- The management states that the driving force behind its capabilities in winning deals in enterprise modernization is its legacy and expertise in cloud-first platform development and modernization that it was doing for product companies in the last 30 years.
- The management states that PS is evaluating 3-4 tuck-in acquisitions for growth currently.
- Although the number of deal wins has gone up in the market and there is a shortage of skilled people, the management maintains that the risk in a delay of deal ramp-ups is dependent on the management’s ability to forecast industry demand and make hirings accordingly. PS has done 4000 new hirings in the last 3 quarters mainly due to this and it has not lost any customers yet.
Analyst’s View:
Persistent System is a fast-rising player in the digital transformation space. It has seen good growth in recent years and is looking to capitalize on this momentum and aim to reach revenues of $1 billion in the next 3 years. The company experienced another strong quarter, with QoQ growth of 10% and YoY growth of 25% in consolidated terms. It has won several large digital engineering and enterprise modernization deals. These deals reinforce the differentiated value that the company delivers to both technology companies and enterprise clients. The company is also looking at possible acquisition opportunities and has maintained its steady rate of employee additions citing building capability ahead of the curve. It remains to be seen whether the demand situation will persist as per management expectations and whether the company will be able to reduce its attrition rate which is above the industry average. Nonetheless, given its fast rise in recent years and its big presence in North America & its various Alliances, and the market potential for enterprise modernization, Persistent Systems remains a key technology stock to watch out for.
Q4FY21 Updates
Financial Results & Highlights
Standalone Financials (In Crs) | ||||||||
Q4FY21 | Q4FY20 | YoY % | Q3FY21 | QoQ % | FY21 | FY20 | YoY% | |
Sales | 720 | 598 | 20.40% | 675 | 6.67% | 2597 | 2268 | 14.51% |
PBT | 190 | 166 | 14.46% | 161 | 18.01% | 668 | 533 | 25.33% |
PAT | 140 | 127 | 10.24% | 126 | 11.11% | 505 | 408 | 23.77% |
Consolidated Financials (In Crs) | ||||||||
Q4FY21 | Q4FY20 | YoY % | Q3FY21 | QoQ % | FY21 | FY20 | YoY% | |
Sales | 1153 | 956 | 20.61% | 1105 | 4.34% | 4296 | 3698 | 16.17% |
PBT | 185 | 113 | 64% | 165 | 12.12% | 609 | 452 | 34.73% |
PAT | 138 | 84 | 64% | 121 | 14.05% | 451 | 340 | 32.65% |
Detailed Results
- The company had an excellent quarter with consolidated revenue growth of 21% YoY and PAT growth of 64% YoY.
- FY21 performance was similar with revenue growth of 16% YoY and 32% YoY PAT growth.
- USD revenues for FY21 were at $566.1 million which was up 12.9% YoY.
- EBIT margin was at 13.2% in Q4 while EBIT was up 70.9% YoY.
- Industry revenue mix was at:
- BFSI: 30.1%
- HCLS: 19.3%
- Tech & Emerging: 50.6%
- Client concentration was: Top 1 @ 17.9%, Top 5 @ 36.4% & Top 10 @ 46.3%.
- Revenue breakup in terms of business offerings was at 85.1% for Services & 14.9% for IP led.
- Geographical revenue breakup was:
- North America: 79.2%
- EU: 10%
- India: 8.9%
- RoW: 1.9%
- Persistent Systems was recognized as a Top 15 Service Provider in 2020 ISG Index™ for a fourth consecutive quarter.
- The company has cash & investments of Rs 1983 Cr as of 31st Mar 2021.
- The company has 17 clients of > $5 million engagement and 66 clients of engagement size of $1-5 million.
- Employee strength has risen 28.7% YoY to 13680.
- The Board recommended a final dividend of Rs 6 per share for FY21.
Investor Conference Call Highlights
- USD revenues for Q4 were at $152.8 million which was up 20.3% YoY.
- The order booking total contract value for the quarter came in at $246.5 million. The annual contract value of this booking is $200.7 million.
- Persistent added 1,242 net hires in Q4 with 1037 lateral hires and 205 freshers.
- The company announced >100% corporate bonus for all employees given its good year.
- The Alliance business showed a growth of 14% YoY.
- The gross margin for Q4 had fallen 40 bps QoQ to 33.9%.
- Forex gain in Q4 was at Rs 17.4 Cr.
- The operational CapEx for the quarter was Rs 28.1 Cr.
- The company also had an interim dividend payout of Rs 14 per share in Feb.
- In BFSI, PS was chosen by a leading Fortune 25 financial services of ISV as a key partner for core IT modernization. This is a 3-year deal to support and maintain identity and authentication products for enterprise applications, involving both offshore, nearshore teams across time zones.
- It was also chosen by a large insurance company for its credit union consumer segment to deliver retail experiences and build a cloud-based data and analytics platform. This would be helping their customers see insights as a service and build customer data warehouses.
- In Healthcare & Life sciences division, PS was chosen by a leading U.S. health system to help them build a digital front door and patient experience solution with integration to EMR systems and patient portals. This will enable the health system to build a unified one-patient portal, simplifying business decisions, enabling a single view of the patient across departments.
- Under software, hi-tech, and emerging technologies, PS was chosen by a global technology leader to partner with them on an engineering and go-to-market partnership on a portfolio of security products. This is a 5-year multi-million-dollar deal to develop an identity and access management product portfolio, with delivery teams spread globally across U.S., U.K., and Asia.
- Persistent announced the partnership with FinMkt point-of-sale lending for banks and credit unions. This partnership is aimed at enabling small to mid-sized financial institutions across the globe to accelerate their digital lending strategy for merchant customers.
- PS has also partnered with AWS ROSA on the Red Hat OpenShift platform to bring services on the AWS services to clients seeking a fully managed OpenShift platform.
- The TCV has fallen QoQ mainly as some of the large customers do their annual renewal in Q3 which is the end of the US fiscal year.
- The management states that the potential for the Red Hat opportunity for PS is around 2-3.5 times of current levels.
- The management states that TCV anywhere between $10 million to $50 million is a sweet spot for Persistent from a bigger deal perspective.
- The management is confident of maintaining an EBITDA margin in the range of 16-17%. It states that this is because there is still room for cost optimization and increasing utilization of the new additions to the workforce.
- Around 65% of the company sales are coming from new product development while 35% are older products that are being modernized.
- The management states that the alliance business should show good sustained growth from Q1 onwards.
- The company has seen many new deal wins for mining only in the past 5 quarters and it is looking to double down on this area and establish itself here.
- The management admits that PS has indeed been pre-emptive in its hiring to build enough capability ahead of the curve.
- The company is looking at acquisition options and will announce its decision in 3-6 months.
- The management has clarified that onshore teams are critical for many important functions like active delivery at the client site, for front end piece of work or for doing proof of concept or for onshore related discussions, and many others.
Analyst’s View
Persistent System is a fast-rising player in the digital transformation space. It has seen good growth in recent years and is looking to capitalize on this momentum and aim to reach revenues of $1 billion in the next 4 years. The company had another excellent quarter with many deal wins resulting in a TCV of $246.5 million and consolidated revenue and PAT growth of 21% & 64% YoY respectively. Q4 caps off a stellar year for Persistent which was evident from its action of awarding >100% bonus for all its employees. The management is also confident of the alliance business gaining momentum going forward. The company is also looking at possible acquisition opportunities and has maintained its steady rate of employee additions citing building capability ahead of the curve. It remains to be seen whether the company will be able to maintain its current momentum and how its India operations will be affected by 2nd Wave of COVID-19. Nonetheless, given its fast rise in recent years and its big presence in North America & its various Alliances, Persistent Systems remains a key technology stock to watch out for.
Q3FY21 Updates
Financial Results & Highlights
Standalone Financials (In Crs) | ||||||||
Q3FY21 | Q3FY20 | YoY % | Q2FY21 | QoQ % | 9MFY21 | 9MFY20 | YoY% | |
Sales | 675 | 586 | 15.19% | 617 | 9.40% | 1878 | 1670 | 12.46% |
PBT | 161 | 121 | 33.06% | 159 | 1.26% | 478 | 366 | 30.60% |
PAT | 126 | 90 | 40.00% | 118 | 6.78% | 365 | 280 | 30.36% |
Consolidated Financials (In Crs) | ||||||||
Q3FY21 | Q3FY20 | YoY % | Q2FY21 | QoQ % | 9MFY21 | 9MFY20 | YoY% | |
Sales | 1105 | 958 | 15.34% | 1024 | 7.91% | 3142 | 2746 | 14.42% |
PBT | 165 | 114 | 45% | 138 | 19.57% | 425 | 339 | 25.37% |
PAT | 121 | 88 | 38% | 102 | 18.63% | 313 | 256 | 22.27% |
Detailed Results
- The company had an excellent quarter with consolidated revenue growth of 15% YoY and PAT growth of 38% YoY.
- 9M performance was similar with revenue growth of 14% YoY and 22% YoY PAT growth.
- USD revenues were at $146.15 million which was up 12.9% YoY.
- EBITDA was up 47.8% YoY.
- Industry revenue mix was at:
- BFSI: 29.5%
- HCLS: 19.1%
- Tech & Emerging: 51.5%
- Client concentration was: Top 1 @ 18.5%, Top 5 @ 37.8% & Top 10 @ 47%.
- Revenue breakup in terms of business offerings was at 81.9% for Services & 18.1% for IP led.
- Geographical revenue breakup was:
- North America: 81%
- EU: 8.8%
- India: 8.6%
- RoW: 1.6%
- Persistent Systems was recognized as a Top 15 Service Provider in 2020 ISG Index™ for a fourth consecutive quarter.
- The company has cash & investments of Rs 1903 Cr as of 31st Dec 2020.
- The company has 17 clients of > $5 million engagement and 65 clients of engagement size of $1-5 million.
- PS announced an interim dividend of Rs 14 per share.
- Persistent completed acquisition of 100% shares of CAPIOT Software Private Limited.
Investor Conference Call Highlights
- The company added >1600 new full time employees in Q3 with >70% of them being lateral hires.
- The salary increment postponed from July was implemented in November.
- PS added new deals with a total TCV of $302 million in Q3.
- The cash on books was at $258 million or Rs 1888 Cr as of the end of Q3.
- The acquisition of CAPIOT added $1 million to revenues while alliance business added $34.6 million in Q3.
- PS’s large deal wins in alliance business will see revenues coming in from Q1 onwards.
- In BFSI, PS won a large multiyear deal to deliver a solution. It will be helping the client, who is one of the top 5 banks globally, to comply with the rules issued by U.S. Financial Crimes Enforcement Network, FinCEN, through identification and verification of beneficial owners of legal entity customers and so on.
- The management states that the broad theme in BFSI will be compliance, modernization, launching new products in digital banking, & making new digital products more secure. The main theme in Healthcare & Life Science will be the digital front door, which is the consumer experience, for Persistent.
- In terms of the linear revenue, offshore linear revenue grew by 8.9%, comprising of volume growth of 11.5% and declining billing rate by 2.3%, essentially because of the lower number of working days.
- The on-site linear revenue decreased by 1%, while there was an increase in volume by 0.2% and the billing rate declined by 1.2%, again, basically because of the impact of furloughs.
- BFSI had a marginally soft quarter with a dip of 0.8% given the seasonality factor, while health care saw good 6.4% QoQ and technology companies and emerging verticals registered a very good growth of 13.2% QoQ.
- The gross margin in Q3 was at 34.3% vs 34.7% in Q2.
- The SG&A expenses were 17.3% as against 18.3% in the previous quarter
- Forex loss was much less at Rs 20 lacs as against Rs 5.1 Cr in the previous quarter.
- The lateral hires of around 1000 employees in Q3 were done mainly for the deal wins in FY21 so far. The fresh hires of 600+ people were done anticipating future deal wins as the company is ramping up its winning momentum.
- Around $175 million of the TCV of deal wins in Q3 was from new customers.
- The utilization rate was in the range of 80-81% in Q3. The employee costs rose 4% QoQ mainly due to the new hires done in Q3 and the wage hike in November.
- The management has admitted that some of the cost savings like the ones in travel will get reversed in the future.
- The company is not going to do any buybacks with its cash and is keeping large cash reserves to stay ready for any potential acquisitions.
- The management believes that the improvement in IP business in Q3 is sustainable.
- In BFSI, the management has stated that it is seeing most of the activity coming in from the digital banking side with more and more banks are trying to launch newer products in the online space. A lot of them are looking at working with the hyperscalers and working towards a hybrid cloud environment.
- The average duration of the new customer deals in Q3 with TCV of $175 million is less than 3 years.
- The management has stated that PS will concentrate on consolidating industry verticals and sharpening service lines for organic growth and it will also be looking for inorganic growth opportunities in Europe. This has been identified as the go-to strategy to pursue growth for PS for the next 4-8 quarters.
- The management has admitted that its strategy to keep creating opportunities in services is to compensate for the volatility in the IP side of the business. Another reason for pursuing services with partners is to source new customers and add new revenue streams which can be expanded upon with cross selling at a later date.
- The management has stated that the M&A would be more in terms of getting capabilities on cloud, security, data and it is not looking to acquire IP-based companies.
- PS is looking to double down in Europe to reduce geographical concentration and dependence on USA and to leverage the opportunities there with its acquisitions. In 3-4 years, the management expects revenues from EU to be at 15-18% of total revenues.
Analyst’s View
Persistent System is a fast-rising player in the digital transformation space. It has seen good growth in recent years and is looking to capitalize on this momentum and aim to reach revenues of $1 billion in the next 4 years. The company had an excellent quarter with many deal wins resulting in a TCV of $302 million. It is also looking to double down on the industry partnerships as it is a growing source of income for PS and a new medium to source new customers. The company is also looking at possible acquisition opportunities particularly in Europe to reduce dependence on USA. It remains to be seen whether the company will be able to maintain its current momentum and whether its strategic acquisitions will prove to be as useful as projected. Nonetheless, given its fast rise in recent years and its big presence in North America & its various Alliances, Persistent Systems remains a key technology stock to watch out for.
Q2FY21 Updates
Financial Results & Highlights
Standalone Financials (In Crs) | ||||||||
Q2FY21 | Q2FY20 | YoY % | Q1FY21 | QoQ % | H1FY21 | H1FY20 | YoY | |
Sales | 617 | 558 | 10.57% | 586 | 5.29% | 1202 | 1084 | 10.89% |
PBT | 159 | 134 | 18.66% | 158 | 0.63% | 317 | 246 | 28.86% |
PAT | 118 | 107 | 10.28% | 121 | -2.48% | 239 | 190 | 25.79% |
Consolidated Financials (In Crs) | ||||||||
Q2FY21 | Q2FY20 | YoY % | Q1FY21 | QoQ % | H1FY21 | H1FY20 | YoY | |
Sales | 1024 | 923 | 10.94% | 1012 | 1.19% | 2037 | 1785 | 14.12% |
PBT | 138 | 116 | 18.97% | 122 | 13.11% | 260 | 225 | 15.56% |
PAT | 102 | 86 | 18.60% | 90 | 13.33% | 192 | 169 | 13.61% |
Detailed Results
- The company had a decent quarter with consolidated revenue growth of 11% YoY and PAT growth of 19% YoY.
- H1 performance was similar with revenue growth of 14% YoY and 13.6% YoY PAT growth.
- USD revenues were at $136.09 million which was up 8.4% YoY.
- EBITDA was up 36.3% YoY.
- Industry revenue mix was at:
- BFSI: 9%
- HCLS: 3%
- Tech & Emerging: 8%
- Client concentration was: Top 1 @ 19.4%, Top 2-5 @ 22.2% & Top 6-10 @ 9%.
- Revenue breakup in terms of business offerings was at 83.8% for Services & 16.2% for IP led.
- Geographical revenue breakup was:
- North America: 9%
- EU: 6%
- India: 1%
- RoW: 4%
- Persistent Systems was cited as a Strong Performer in the Forrester Wave: Digital Process Automation Service Providers, Q3 CY2020.
- Persistent launched Center of Excellence Accelerating Hybrid Cloud Journey with Red Hat OpenShift.
- Persistent Achieved AWS Service Delivery Designation for AWS Lambda.
- Persistent Systems was recognized as a Top 15 Service Provider in 2020 ISG Index™ for a second consecutive quarter.
- The company has cash & investments of Rs 1693 Cr as of 30th Sep 2020.
- The company has 16 clients of > $5 million engagement and 63 clients of engagement size of $1-5 million.
Investor Conference Call Highlights
- The company has appointed Mr. Sandeep Kalra as CEO in Q2.
- Tech companies and emerging verticals led the growth at 4.7% QoQ, followed by BFSI at 4.2% QoQ and Healthcare & Life Sciences at 1.4% QoQ.
- The company continues to see strong traction in its Product Engineering Services as well as cloud and infrastructure service lines.
- Persistent won a number of large deals in the quarter in TSU across its existing customers and net new customers.
- It won large multiyear, multimillion-dollar deals to set up a global technology center for a leading cloud-based voice, video messaging platform & a large tax technology company.
- It also won a multimillion, multi-year deal to provide operational support, including IT service desk and onboarding for end customers and traders for an innovative multi-bank trade finance network in Europe.
- The company also won a multiyear, multimillion-dollar deal for a large multinational medical technology company for rearchitecting their flagship product from legacy to modern component-based architecture.
- For one of its existing customers in the scientific instrumentation space, PS won a multiyear, multimillion-dollar contract across new business units to build newer reporting applications.
- The company has announced the acquisition of CAPIOT to strengthen its data integration capabilities in the MuleSoft, TIBCO, and Red Hat space. This deal is expected to help expand the footprint with its Salesforce customers.
- The utilization improved to 81.2% as compared to 78.5% last quarter. Attrition was lower at 10.6% on the trailing 12-month basis as compared to 12.7% in the previous quarter. The company has planned to do salary increments in November for all employees.
- The gross margin came in at 34.7% as against 33% in the previous quarter. Sales and marketing expenses came in at 8.9% of revenue as against 8.7% in the previous quarter.
- Admin and other expenses came in at 8.1% of revenue. Forex loss came in at INR 51 million as against INR 58 million in the previous quarter.
- The operational CapEx for the quarter was INR 263 million, part of which was to enable all employees to have the equipment to continue to work from home.
- The forward contracts outstanding as at 30th September were $129 million with an average rate of INR 76.30 per $1.
- The management maintains that there are a lot of service offerings that can be taken from the tech services business to the Alliance and vice versa.
- The company will be looking to significantly move the resources from on-site to offshore, and that will provide cost savings and help mitigate the impact of the salary increment along with the reduction in discounts.
- It is indeed part of the company’s strategy to keep trying to book larger deals, long-term deals with both existing customers or new customers and bring up the quality of revenue and the quality of customers in each packet.
- The management maintains that it is seeing green shoots of opportunities from alliances.
- In terms of acquisition strategy, the company is looking at 3 things basically. They are to increase the value proposition, industry vertical, and geographic diversification.
- Margins are expected to rise in FY22 as amortization comes down and provisioning for COVID gets reduced.
- The company is broadly at 60% offshoring. The management believes that offshoring will rise as more & more customers come to accept it and due to the cost savings involved.
- The company had 2 large deals in the reseller business in Europe last quarter which was a one-off but gets renewed each year.
- The company is also looking to expand the services business in both alliance and tech services verticals in the EU.
- The company is looking to target growth to $1 billion over the next 4 years.
- The company is looking to bring in its existing services into the Alliance side in the next 2-3 quarters.
- The management aims to maintain the company’s position in the top quartile of the industry growth at least.
- The Salesforce business had indeed paused in the EU at the start of COVID but it is coming back now.
- The company will unveil its plans to reach $ 1 billion in the next 4 years in the coming quarters.
- The company is maintaining big cash reserves to be able to do any acquisitions whenever it needs to.
- The company has initiated a program to reduce its dependence on subcontractors. This dependence should trend down in the medium term.
- For this quarter and next quarter, PS has a plan to add anywhere between 300 to 400 people on a quarterly basis.
Analyst’s View
Persistent System is a fast-rising player in the digital transformation space. It has seen good growth in recent years and is looking to capitalize on this momentum and aim to reach revenues of $1 billion in the next 4 years. The company had a decent quarter with much large deal wins. It is also looking to increase its offshoring quantum which should yield cost savings in the long term. The company is also looking to introduce many cross-sell opportunities between its tech services and alliance verticals. It remains to be seen whether the company will be able to maintain its current momentum and whether its strategic acquisitions will prove to be as useful as projected. Nonetheless, given its fast rise in recent years and its big presence in North America & its various Alliances, Persistent Systems remains a key technology stock to watch out for.
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