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Persistent Systems' (PSYS) - Qtr. Update - Dtd - April 22, 2013




Axis Capital Limited


23 Apr 2013





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Persistent Systems’ (PSYS) Q4 PAT at Rs 519 mn was higher than our estimate of Rs 470 mn due to lower G&A, higher other income, and forex gain. Revenue at ~USD 62 mn was marginally lower than our estimate. IP to account for a quarter of revenue in 2 years  Higher traction in IP revenue (~17% of revenue in FY13 vs. 9% in FY12). IP revenue in FY14 will be strengthened further by full year impact of three acquisitions/ deals – HP Client Automation (HPCA), Doyenz and NovaQuest. We expect aggregate revenue from these initiatives at ~USD 22 mn; contributing ~40% of FY14E incremental revenue  Momentum in focus areas of Cloud, Analytics, Mobility and Enterprise Collaboration (aggregate revenue share at ~45%) to remain strong FY14E margin decline to be offset by higher other income Q4 margin at ~25% was better than our expectation by 100 bps due to better collection efforts leading to reversal in doubtful debt provision. However, we expect EBITDA margin to decline in H1FY14 due to (1) knowledge transfer costs in HPCA deal and (2) absorption of salary hikes (7-10% in Q2). Revenue billing in HPCA contract would come onstream in Q2, which would improve margin from H2. While FY14E EBITDA margin is likely to decline ~100 bps, higher other income estimate leads to no material change in FY14E EPS. Higher license sales may boost earnings (not factored in). Estimates and valuation: We maintain our FY14E/FY15E USD revenue estimate at 16%/ 15% and EPS estimate at Rs 56/ 63. Our TP stands at Rs 693 (11x FY15E EPS). Maintain BUY given 27% upside from CMP. At CMP of Rs 545, the stock trades at 10x FY14E EPS of Rs 56 and 9x FY15E EPS of Rs 63. Our estimates are based on INR/USD of Rs 56.5 for FY14E and Rs 58.5 for FY15E. Note: At current INR of Rs 54.2. EPS will be Rs 53/ Rs 60 for FY14E / FY15E and PE will be 10x / 9x respectively. Regards, Priya Rohira (Executive Director – IT & Telecom) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1104 Vishal Desai (AVP – IT) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1119

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