MOSL: PERSISTENT SYSTEMS (Buy) - Revenue outperforms-Margins remain moderate as expected
PERSISTENT SYSTEMS: Revenue outperforms; Margins remain moderate as expected
(PSYS IN, Mkt Cap USD0.7b, CMP INR612, TP INR790, 29% Upside, Buy)
- 2QFY20 revenues grew 6.2% YoY (v/s est. 3.7%) to USD125.5m; EBITDA declined 15.3% YoY (v/s est. decline of 20.1%) to INR1.2b. PAT declined 2.3% YoY (v/s est. decline of 13.4%) to INR861m. Services revenue grew 3.6% QoQ to USD100.5m (v/s est. USD93.8m). IP-led revenue was up 9.7% QoQ to USD28.3m (in-line). 1HFY20 revenue/EBITDA/PAT grew 2.8%/14.1%/9.8% YoY.
- Broad-based growth drives performance: Services revenue growth was driven by multiple large deal wins in BFSI, Life Sciences and ISV space. Digital grew on back of Youperience acquisition (USD 1.6m incremental revenue) in Europe, which further strengthened its sales force capabilities. It also introduced new solutions in the BFSI and Security segments.
- Margins set to improve hereon: Margins remained weak (EBIT margin declined 90bp QoQ to 8.9%), largely due to wage hikes, hiring of FTEs/ sales, and one-off expenses toward brand-refresh exercises. This was partially offset by revenue growth in IP, change in leave policy, currency depreciation, and absence of visa costs. Utilization should improve as new resources get billed in the coming quarters, which should lead to improvement in margins.
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.
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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