6 May 2020
4QFY20 Results Update | Sector: Technology
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financials & Valuations (INR b)
EBIT Margin (%)
EPS Gr. (%)
Div Yield (%)
38.6 / 0.5
740 / 420
TP: INR 730 (+45%)
Surprise on growth and margin; Cautiously optimistic outlook!
Steady progress on turnaround; Reiterate BUY
Despite the disruption due to COVID-19, Persistent’s strong performance
within the Services segment (~15%/11% in 4Q/FY20, YoY) reflects its steady
progress on turnaround. As the pandemic situation is expected to increase
the uptake of digital services, we expect Persistent’s portfolio to benefit.
High exposure to salesforce consulting and verticals such as Technology,
Healthcare, and BFSI gives us this confidence. Nevertheless, IP revenue
should continue to be an overhang. Historically, execution challenges and
volatility in the IP portfolio have led to inconsistency in the company’s
performance. However, the recent improvement witnessed in execution and
a higher focus on annuity revenue should address this issue to some extent.
A relatively higher share of dollar invoicing (v/s peers) cushions against a
further impact on already depressed margins.
We upgrade our EPS estimates over FY20–22E by 20–22%. While material
delay in clients’ discretionary spends is a monitorable risk, subdued
multiples offer adequate margin for safety.
Surprise on revenue and margin; Decline in IP-led revenue
Shareholding pattern (%)
Mar-20 Dec-19 Mar-19
FII Includes depository receipts
In 4QFY20, revenue (USD) / EBIT (INR) / PAT increased 7%/-4%/-1% YoY v/s
our estimates of 6%/-19%/-13% YoY.
Technology Services Unit (TSU) reported strong growth of 4.2% QoQ despite
the disruption from COVID-19 during the quarter. Growth in this segment
was broad based across top clients and led by offerings such as salesforce
However, overall revenue decline was attributed to sharp decline in the IP
segment (~24% QoQ). The issue of seasonality, in this case, was
compounded by the lockdown.
Across verticals, the IP decline was reflected in the Tech Companies &
Emerging vertical (-3.9% QoQ, ~50% of revenues). Revenue in BFSI and
Healthcare & Life Sciences (~50% of combined revenue) remained largely
Revenue from the top account fell sharply (-12% QoQ). While growth in the
top 2–5 clients came in strong at 5% QoQ, the top 6–10 accounts (-6% QoQ,
USD) remained an overhang on growth.
Even as the Americas and Europe reported a drop (-2% /-18% QoQ), RoW
delivered healthy growth (+16% QoQ).
The EBIT margin expanded ~50bp QoQ to ~9.2% (v/s 8% est.). Lower IP
royalty expense led to gross margin expansion (+70 bps). This was partially
offset by an increase in SG&A costs and a one-time provision for expected
Sudheer Guntupalli – Research analyst
(Sudheer.Guntupalli@MotilalOswal.com); +91225036 2749
Research analyst –Mohit Sharma
(Mohit.Sharma@MotilalOswal.com); +91226129 1531 /
(Heenal.Gada@MotilalOswal.com); +91225036 2654
Investors are advised to refer through important disclosures made at the last page of the Research Report.
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