Persistent Systems LtdQ1 FY23IT - Software

Persistent Systems Ltd

Q1 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 4

Margin

Category 2

Fundraise

N/A

Order

Yes

Capex

Yes

2 of 4 growth signals are positive.

Revenue guidance

Category 4

→Persistent Systems aims for a stable and gradually improving growth profile for top clients in FY24.
→Quarterly revenue growth in FY24 is targeted in the range of 3%-6%.
→The company has achieved significant deal wins, including large strategic deals totaling USD 100 million TCV with a top customer, supporting future revenue expansion.
→Growth is supported by scaling existing accounts, fresh talent deployment, and expansion in emerging areas like Generative AI and Cloud services.
→Despite some ramp downs and uncertainties in the macro environment, Persistent expects order book growth and ongoing client engagement to sustain revenue increase.
→The Hyperscaler account, which saw a recent ramp down, is expected to resume growth over the next several quarters.
→Continued focus on winning large enterprise customers for extended support and new product development services will add to revenue streams.

Category 2

→Persistent Systems achieved record revenue crossing $1 billion for the first time in its 33-year history (Sandeep Kalra, Page 29).
→The company targets quarterly growth of 3%-6% in subsequent quarters, aiming to return to 4%-6% quarterly growth in FY24 (Page 16).
→Commitment to systematic profitability improvement: targeting 200-300 basis points increase in profitability over the next 2-3 years through margin expansion, better utilization, and cost controls (Page 20).
→FY23 EBIT margin improved to 14.9% (from 13.9% in FY22), with EBIT growth of 57.4% YoY (Page 11-12).
→PAT for FY23 grew 33.4% to INR 9,211 million; EPS grew 5.5% QoQ in Q4 (Page 11-12).
→Company balances dividend payout with tuck-in acquisitions to fuel growth and improve earnings (Page 29).
→Overall, management expects healthy earnings growth, margin expansion, and strong cash flow normalization in FY24 onward.

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→There is no explicit mention of any current or future plans for fundraising through debt or equity in the provided transcript.
→The company has highlighted that interest on borrowing was availed for acquisition funding, indicating prior use of debt for acquisitions.
→Cash and investments stood at INR 15,199 million as of March 31, 2023, with partial reduction due to dividend payouts and facilities costs.
→The focus appears to be on capital allocation between dividends and tuck-in acquisitions rather than raising new funds.
→The company emphasizes efficient capital allocation, including prudent use of capital for acquisitions to drive growth.
→No direct comments or indications about new equity issuance or debt raising were made in the discussed segments.

Yes

→Total Contract Value (TCV) order book for Q4 stands at USD 421.6 million.
→New bookings in Q4 contributed USD 250.3 million to TCV, showing a 16.8% year-on-year growth.
→Annual Contract Value (ACV) of the TCV is approximately USD 310.4 million, with new bookings accounting for USD 168.3 million.
→For the full year FY23, total TCV crossed USD 1.6 billion, with ACV at USD 1.17 billion.
→FY23 TCV growth was 32.8%, and ACV growth was 24.1%, including renewals and new bookings.
→There is a healthy pipeline, although some deals took longer to book than expected.
→Market conditions remain tough for the next one to two quarters, but opportunities persist.
→Extended support deals, including a recent large deal, are contributing to order book growth.

Yes

→Operational capex for the quarter was INR 1,232 million, including increased facilities in India locations such as Hinjewadi.
→Expansion plans include developing new campuses and offices in Nagpur (MIHAN plot), Kolkata (250-seater office), Jaipur, Kochi, Chennai (India), Dallas (Texas), and Poland (Europe, near-shore delivery center).
→Focus on building a world-class delivery network by providing best-in-class facilities and encouraging hybrid work models.
→Active on the M&A front targeting Consumer Technology, Cybersecurity, Generative AI, European expansion, Financial Services, and Healthcare domains.
→Investment in Software Labs and employee training on Generative AI, large language models, AI-paired programming (e.g., GitHub Co-pilot).
→Expansion of Azure Center of Excellence with AI-based modern workplace solutions ongoing, with progress expected over coming quarters.

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