For Persistent Systems, near-term impact of recent acquisitions is key
Premium- Though these acquisitions are expected to impact Persistent Systems' margins negatively in the short term', they will be key drivers of growth going forward
Tier-II IT company Persistent Systems Ltd reported a sequential dollar revenue growth of 9.1% in the March quarter of fiscal year 2022, ahead of analysts' estimates. Growth was mainly aided by its services vertical, while the IP segment registered a sequential decline in revenue in the March quarter.
This stock has been on investors' radar screen in recent months for its slew of acquisitions. Note that in Q4FY22, the company invested in two companies, MediaAgility with Google cloud capabilities and Data Glove with Microsoft Azure capabilities.
Analysts at Motilal Oswal Financial Services Ltd note that the impact of these acquisitions stood at 200-250 basis points. Excluding that, revenue growth in Q4FY22 was up 6.5-7%, sequentially, said the domestic brokerage house in its result flash note. One basis point is one hundredeth of a percentage point.
Ebit margin at 14.1% in Q4FY22 was a tad higher than 14% in Q3FY22. Ebit is short for earnings before interest and tax. Analysts at Edelweiss Wealth Management note that while Ebit margin in the March quarter was ahead of their estimate of 13.5%, these acquisitions are expected to impact the company's margins negatively in the short term. However, they will be key drivers of growth going forward.
The company's deal wins remained robust in the March quarter with total contract value (TCV) at $361million, with 54% new TCV.
Another positive takeaway for its investors was that attrition on a trailing 12-month basis was largely flat at 26.6% compared to 26.9% in 3QFY22. Analysts note that the company posted a strong headcount addition for the sixth straight quarter, up around 10% sequentially.
Meanwhile, shares of the company were trading flat on the NSE on Thursday. Analysts note that at its earnings call which is scheduled in the evening, the management commentary on the near-term demand outlook and IP business, among others, would be crucial.
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