Persistent Systems Q2FY18 Concall Summary

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Financial Highlights

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  • During the quarter the revenue was $118.10 million, which was a 4.5% QoQ growth and a 12.3% YoY growth
  • In Indian rupee terms the revenue was Rs. 7,612 million with a 4.6% QoQ growth and 8.1% YoY growth
  • The PAT was Rs. 826 million which is a 10% QoQ growth and a 12.4% yearly growth
  • On half yearly basis, revenue for first half is Rs. 231.07 million and in rupee terms is Rs. 14,892.67 million and PAT is Rs. 1,577.12 million
  • The steady growth is supported by strong demand in data, digital and IoT, specifically in healthcare and financial services
  • The revenue of Rs. 118.10 million includes $1.9 miilion from PARX
  • The linear revenue grew by 6.2% QoQ mainly with a volume increase of 5.4% and increase in billing rate by 0.8%
  • The onsite linear revenue grew by 11.4% QoQ mainly with a volume increase of 11.5% and decrease in billing rate by 0.1%
  • The offsite linear revenue grew by 2.7% QoQ mainly with a volume increase of 4.2% and decrease in billing rate by 1.5%
  • EBITDA margin was 15.2% against 14.3% in the previous quarter due to improved operational efficiency
  • Utilization for this quarter was 78.6% against 77.2% in the previous quarter
  • Growth in EBITDA was 10.9% QoQ and 4.5% YoY; YoY growth was mainly impacted by exchange rate movement
  • Depreciation and Amortization was 5% against 5.4% earlier and EBIT was 10.2% against 9% in the previous quarter
  • Treasury income decreased to Rs. 133 million from Rs. 183 million in the previous quarter
  • Gain on foreign exchange was Rs. 203 million against Rs. 184 million in the previous quarter
  • Subcontracting costs is increasing every quarter and is presently 18% of salary cost
  • The company is seeing steady QoQ improvements in two new products Sentient and ShareInsights
  • In FY2017, the company capitalized Rs. 217 crores in intangible assets and the range of amortization is three to six years
  • PBT was Rs. 1,115 million at a margin of 14.6% against 14% earlier
  • Growth in PBT was 9.3% QoQ and 13.2% YoY and ETR was 25.9% for the quarter
  • PAT was Rs. 826 million at 10.9% against 10.3% in the previous quarter and growth in PAT was 10% QoQ and 12.4% YoY
  • The operational CAPEX for the quarter was Rs. 46 million
  • Cash and current investments amounted to RS. 9,992 million at September end against Rs. 8,745 million at the end of June
  • Forward contracts outstanding at quarter end were $100 million with an average forward rate of 67.99
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Business Updates

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  • The company also launched Smart India Hackathon 2018
  • The services business for the company has grown by 2.7%
  • The digital OU grew to 24.67 million, a growth of 21% QoQ and 60% YoY
  •  There is a difference of few hundred basis points between alliance number and the top client number
  • The customer is now looking at custom built development on the newer technology, and that is where the company is winning
  • The Enterprise business is expanding but the ISV business is shrinking
  •  There is a decline in the headcount of the IP led business as the personnel allocated is lower due to optimization
  • Excluding PARX, the sequential growth in Europe has been good due to a nice deal the company closed as a part of the Accelerite portfolio
  • Alliance shows weakness in current quarter as IBM’s numbers are better in Q4 compared to Q3
  • Service margin fell as onsite numbers have gone up compared to previous year and currency fluctuations also contributed partly
  • The mix of the company is more in favour of solutions side rather than implementation side when it comes to the partners Salesforce, Appian and Oracle
  • The company received Rs. 4 crore more than expected from an insurance claim on an IP infringement case and thus a reversal of RS. 4 crores is done in the release
  • The company is operating at 77% utilization in India and hopes to improve it
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New Initiatives – PARX & NEURO

  • The company acquired PARX, platinum partner for Salesforce in DACH region in Europe and would be ramping up its business in Europe
  •  In Europe and others parts of the world as well, the company hopes to add more digital enterprise clients
  • There is huge addition of clients due to the 100+ customers added from the PARX portfolio
  • PARX contribution was 0 in this quarter but should come back to 10% by next quarter
  • The company bagged a technology in its deal with USAA about launching risk based solutions and has now built NEURO, and also had first few customers including major names in the financial world
  • The first version of NEURO was released in May end and the price point could be anywhere from 100k to 250k

  Future Guidance

  • Applications based on the build out of the open source platform with Partners Healthcare would soon be out
  • The company hopes CE/CLM business to be lower double digits this year
  • The company expects the digital business to be half a million dollars and expects the growth rate to be near to 50% for the year  
  • The company has opportunities with healthcare providers with use of Ai in drug design, IoT for innovative solutions, blockchain for universal EMR, etc.
  • During Q2 the company added 19 new Enterprise customers of which it expects to convert at least half into multi million dollars accounts in the coming quarters
  • The company expects wage headwinds and has announced wage hikes of 6%-8% for junior category people in Q4, comprising about 75% of staff and would result in 1.5%-2% extra costs
  • Services business is a business with lots of headwinds and would be flattish in the times to come
  • IP led revenue has been flattish for six quarters, close to 30 million but would improve in Q4
  • The company hopes offshore utilization of 80+% and onsite utilization of 90+%
  • The company gave a margin guidance of 200 bps at the start of the year
  • The company would release the CE/CLM product in December quarter and has a six month cycle for product releases