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Analyst Research Report Snapshot


Persistent Systems (PSYS) - Qtr. Update - Dtd. - January 28, 2013




Axis Capital Limited


29 Jan 2013





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Persistent Systems’ (PSYS) Q3 PAT at Rs 495 mn was higher than our estimate of Rs 469 mn (despite EBITDA being lower than our expectations) due to higher other income and forex gain. Revenue was largely in line with our estimate at ~USD 61 mn. FY14 growth outlook much stronger vs. FY13: led by (1) deal pipeline that has increased ~50% YoY, (2) continued momentum on 4 focus areas of Cloud, Analytics, Mobility and Enterprise Collaboration (aggregate revenue share at ~45%), and (3) higher traction in IP revenue (~18% of revenue). EBITDA margin is expected to improve from ~25% in Q3 led by better volume visibility and higher IP revenue share. Expect margin to improve: EBITDA margin declined ~250 bps QoQ to ~25% due to (1) Doyenz acquisition, (2) ~350 employee additions, and (3) higher SG&A. We expect PSYS’ margin to improve given rising share of high margin IP revenue and increasing volume visibility in traditional Outsourced Product Development (OPD) segment (82% of revenue). Introduce FY15 estimates, upgrade to BUY: Our FY14E revenue and EPS undergo marginal revision. We roll forward our TP to FY15E EPS. Our revised TP stands at Rs 590 (10x FY15E EPS of Rs 59) vs. Rs 550 earlier (11x FY14E EPS). Upgrade to BUY given 13% upside from CMP of Rs 524. At CMP of Rs 524, the stock trades at 10x FY14E EPS of Rs 53 (Rs 55 earlier) and 9x FY15E EPS of Rs 59 Regards, Priya Rohira (Executive Director – IT & Telecom) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1104

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