Persistent Systems Q1FY18 Concall Summary

Persistent Systems.png

 Overall Revenue Numbers :

Persistent Systems Q1FY18 Sequential HIghlights.png
  • Dollar revenue for Q1 FY18 stood at $113.97mn showing a 3.6% q-o-q growth and 7.8% y-o-y growth
  • INR revenue for Q1 FY18 stood at INR 7,280.15mn showing a 0.1% q-o-q growth and 3.7% y-o-y growth
  • Linear revenue grew by 4.1% q-o-q, driven by 1.8% volume growth and a 2.2% increase in average blended billing rate
  • Offshore linear revenue dipped by 0.3% q-o-q, due to 0.8% dip in billing rate although there was 0.4% volume growth
  • Onsite linear revenue grew by 11.2% q-o-q, driven by 10.4% volume growth and a 0.8% increase in billing rate
  • Enterprise business revenue has grown by 9% q-o-q
Pwrsistent Systems Q1FY18 YoY Performance.png


  • EBITDA margin for Q1 was 14.3% compared to 16.3% in Q4 FY17. Few factors that impacted EBITDA margin are:
    • Rupee appreciated by 3.4% which impacted the margin by 120bps
    • Higher proportion of onsite revenue coupled with investments and few new partnerships from previous quarters impacted the margin by 90bps
    • Lower offshore utilization impacted margin by 40bps
    • One-time seasonal cost in terms of visa and certain acquisition related costs relating to PARX impacted margin by 70bps
    • A few investments in sales people impacted the margin by 30bps
    • Provision for certain debts that crossed 180 days impacted margin by 40bps
  • Recovery of earlier provided debts has given a credit of 20bps during Q4 FY17, whereas in Q1 FY18, there was a charge of 20bps
  • Higher amount of IP Revenue helped margins to a certain extent
  • There was no wage pressure on EBITDA margin as some of the salary increments are shifted to next quarter
  • D&A in Q4 was at the same level compared to Q3 at 5.4% of revenue
  • EBIT margin for Q1 was 10.9% as against 9% in the previous quarter
  • Treasury income was INR 183mn in Q1 vs INR 171mn in Q4 FY17. The exchange gain in Q1 was at INR 184mn higher than previous quarter due to mark-to-market gain on hedges
  • PBT margin was 14% (INR 1,019mn) in Q1 compared to 12.9% in previous quarter
  • ETR for Q1 was 26.3%
  • PAT margin was 10.3% (INR 751mn) in Q3, growing by 3.2% q-o-q and 2.5% y-o-y
  • With more or less a constant billing model, future expansion of margins depends on growth from margin businesses like IP-led ones and the company seems to be on track 

Other Important Financial Information:

Persstent Systems Q1FY18 Key Metrics.png
  • Operational Capital Expenditure for Q1 was INR 85mn
  • Cash and investments at the end of Q1 were at INR 9,011mn compared to INR 9,411mn at the end of previous quarter
  • Value of forward contracts outstanding at the end of Q1 was $94mn at an average forward rate of INR 69.40/$

Services Business:

  • Q1 revenues were 5% up q-o-q. The company has closed few major deals in this quarter
  1. One in India - MP Vidhan Sabha. The company is using its IP and machine learning and sees potential to expand into other states as well
  2. One in US – An integration framework with 30+ banks and the company sees to have many of these banks ending up as customers in future
  3. Also, one of the life sciences deal that the company has last quarter started to scale up in Q1and may eventually expand to India as well from current US works
  • The number of customers in $3mn+ bracket has also been showing good growth, a positive sign for the business, however no of total customers reduced by 10

 Non-Services Businesses:

Digital Buisness  

  • Digital business remained flat compared to previous quarter with 36% y-o-y growth
  • The company has been building good solutions in the healthcare progressing well in the direction of transforming into solution-led business from project-led one
  • In Q1 the company had good progress with the deals that were acquired in previous quarter (USAA and Partners Healthcare)
  • The company is in multiple customer conversations for the offering that ithas built based on patented technology from USAA
  • For Partners Healthcare, the company is building an open source healthcare platform as well as the first clinical application for congestive heart failure. This IP would position Persistent very well for digital transformation in healthcare and also in financial services (as it is scalable)
  • During Q1, the company has added 15+ major customers, including
  1. A large U.S.-based home furnishing company
  2. A healthcare products’ company
  3. A large mobile carrier
  • However, there was a loss of 2 clients in IP led business

PARX Acquistion  

  • In Q1, the company has acquired PARX, a Salesforce certified platinum partner in Germany, Austria, and Switzerland, to expand European business, which is currently <6% of overall business
  • The deal value was CHF 8mn upfront payment and a provision for7.5mn CHF of additional earn-out over the next 3 years depending on performance and the founders staying within the company
  • PARX had ~CHF 8mn Revenues(generally works with small partners of average deal size $10-20k) in CY16 and ~80 employees
  • Persistent believes PARX to help in margin expansion in the next 2-3 quarters and also looks to leverage PARX’s solutions in other parts of the world as well

IBM Alliance business:

  • It has progressing well with good growth in terms of revenues and at the same time taking profitability building measures like cost-efficiency through realignment of employees, generation of potential leads, etc.
  • From the work perspective, for one of the new Pharma customers, the company is leveraging its artificial intelligence and machine learning expertise to develop a global regulatory science and policy intelligence application


  •  Accelerite business dipped a little in Q1 as one of the projects got closed out in the previous quarter, however, pipeline looks robust for future growth

Other Key Highlights:

  • Opened new centers in Mexico, Israel, and new locations in US
  • 2 new products –ShareInsights and Concertlaunched in Q1 have performed quite well
  • The growth trajectory for the full year looks very strong based on the momentum of new customers, new IP development, strengthening of consultative selling theme and strength in specific industries and platforms for the digital business