Motilal Oswal - Persistent Systems (PERSISTENT) MOSL: PERSISTENT SYSTEMS (Buy)-Growth dragged by digital execution-earnings cut by 7-16%

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Motilal Oswal

MOSL: PERSISTENT SYSTEMS (Buy)-Growth dragged by digital execution-earnings cut by 7-16%

Persistent Systems: Growth dragged by digital execution; earnings cut by 7-16%

(PSYS IN, Mkt Cap USD0.6b, CMP INR559, TP INR750, 34% Upside, Buy)

Soft revenue performance: PSYS’ 2QFY19 revenues declined 4.3% QoQ to USD118m (est. of +0.5%). We expected IBM IoT resale to be impacted by seasonality. However, Digital failed to recover from its sluggishness led by a project closure and shifting to offshore, which further added to the disappointment. Digital revenue at USD26m was flattish sequentially, and grew by 17% YoY in 1HFY19, slowing down from its >30% run-rate.
Contrast on profitability: EBITDA margins expanded by 40bp QoQ to 17.2% despite wage hikes and decline in revenue, ahead of our estimate by 150bp (expected to decline 110bp QoQ). The beat was led by INR depreciation and higher offshoring. PAT at INR881m grew by 1% QoQ (est. of 7% QoQ) led by lower revenue and other income, and higher ETR.
Issues execution-related: PSYS cited buoyancy in demand, but there were issues in execution across sales, delivery and supply. The company made several changes over the past few quarters, these include: (a) merging Services and Digital, (b) changing sales incentives, (c) sharpening its product portfolio, (d) creating common engines to drive focus and sales, and (e) ramping up hiring. These should result in better performance gradually, going forward.

23/10/2018 14 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)-Growth dragged by digital execution-earnings cut by 7-16%

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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