Motilal Oswal - Persistent Systems (PERSISTENT) MOSL: PERSISTENT SYSTEMS (Buy)-A stern test of our margin recovery thesis

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Motilal Oswal

MOSL: PERSISTENT SYSTEMS (Buy)-A stern test of our margin recovery thesis

â€‹Persistent Systems: A stern test of our margin recovery thesis

(PSYS IN, Mkt Cap USD0.8b, CMP INR657, TP INR750, 14% Upside, Buy)

1QFY18 was all about margin contraction: Persistent Systems' (PSYS) 1QFY18 revenue of USD113m (+3.6% QoQ, in line) lost relevance to sharp 360bp QoQ contraction in EBITDA margin to 14.3%, significantly below our estimate of 16.5%. This 220bp miss naturally challenged our thesis of margin recovery-led earnings growth in the company. Net income grew 3.2% QoQ to INR751m, in line with our estimate of INR758m. This was facilitated by forex gains of INR183m.
A plethora of factors led to margin disappointment: The following factors contributed to 1QFY18 margin contraction: [1] currency (120bp), [2] onsite revenue mix shift and investments in new partnerships (90bp), [3] lower offshore utilization (40bp), [4] visa and costs related to Parx acquisition (70bp), [5] upfront investment in sales team (30bp) and [5] change in bad debt provisions (40bp). Part offset came from healthy growth in IT Services revenue.
Services segment took over from Digital: Onsite mix shift was a contributor to revenue growth during the quarter, as volume growth was 1.8% QoQ. High flying Digital segment declined 1.3% QoQ, whereas Services saw growth of 5% QoQ during the quarter. PSYS cited the brakes on Digital as quarterly aberration and should resume. Alliance segment was strong (+9% QoQ), whereas Accelerite dropped from USD10.5m to USD9.4m.

24/07/2017 12 EN

Underlying

Persistent Systems

Persistent Systems Limited is engaged in the business of building software products. The Company offers complete product life cycle services. The Company's segments include Infrastructure and Systems, Telecom and Wireless, Life science and Healthcare, and Financial Services. The Company's products include Connected Healthcare, which is an integrated healthcare ecosystem; ShareInsights Platform, which allows organizations to analyze an overlay of enterprise data with public or cloud sources to derive insights; Digital Banking, and Accelerite, which provides cloud solutions, endpoint management and mobility. The Company provides product engineering services, platform-based solutions and Internet protocol (IP)-based software products to its global customers. It has presence in North America, Europe and Rest of the World. Its subsidiaries include Persistent Systems France S.A.S., Persistent Systems Malaysia Sdn. Bhd. and Persistent Systems Pte. Ltd.

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INE262H01013 National Stock Exchange of India India

Provider

Motilal Oswal

Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.

Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.

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MOSL: PERSISTENT SYSTEMS (Buy)-A stern test of our margin recovery thesis

MOSL : . PERSISTENT SYSTEMS: Strong growth factored in the rich valuations

PERSISTENT SYSTEMS sees a downgrade to Neutral on account of less fundamental stars

MOSL: PERSISTENT SYSTEMS (Downgrade to Neutral)- Valuation factoring in industry-leading performance

MOSL : HOME FIRST FINANCE COMPANY: Earnings in-line with sustained improvement in asset quality

MOSL : SHOPPERS STOP: Ticking the right boxes

MOSL : ERIS LIFESCIENCES: Enhanced efforts toward product launch-related activities

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