Earnings Outlook
Strong order book to drive Persistent Systems' earnings
This story was originally published at 17:16 IST on 21 January 2025
Register to read our real-time news.Informist, Tuesday, Jan. 21, 2025
By Arya S. Biju
MUMBAI – A strong order book, contribution from recent acquisitions, and ramp-up of deals in the healthcare and banking verticals are expected to help Persistent Systems Ltd. report robust earnings for the seasonally weak December quarter. Sequentially, the company's bottom line is likely to continue its growth after contracting in the June quarter, analysts said.
The company's consolidated net profit for the December quarter is seen rising 8% on quarter to INR 3.51 billion, according to the average of the estimates of 13 brokerage firms. Among them, Mirae Asset Sharekhan had the highest estimate for consolidated net profit at INR 3.61 billion while Elara Securities (India) Pvt. Ltd. had the lowest at INR 3.42 billion. In the previous quarter, the company had reported a consolidated net profit of INR 3.25 billion, up 6.1% sequentially.
Analysts expect the company's consolidated net sales to rise 4% on quarter to INR 30.20 billion. Nirmal Bang Equities Pvt. Ltd. has the highest estimate for consolidated net sales at INR 30.52 billion and KR Choksey Research has the lowest estimate at INR 29.53 billion. The company had reported consolidated revenue from operations of INR 28.97 billion in the September quarter, up 5.8% sequentially.
Analysts expect the technology services provider to report sequential revenue growth in both dollar and constant currency terms for the quarter, after factoring in 30-40 basis point cross-currency headwinds. Broad-based growth led by healthcare, banking, and high technology verticals, ramp-up of existing deals, and new deal wins are expected to drive the growth in top line for the quarter both in constant currency and dollar terms, analysts said. Motilal Oswal Financial Services Ltd., however, expects the company's revenue growth in constant currency terms in the healthcare vertical to be offset by furloughs in the banking and high technology verticals.
Persistent Systems is expected to report healthy total contract value and annual contract value wins for the December quarter, analysts said. New deals and deal renewals in the US are expected to drive a higher annual contract value in the December quarter, Motilal Oswal said in an earnings preview report.
The operating margin or earnings before interest and tax margin of the company for the quarter is expected to expand to 14.52% from 14.00% reported in the previous two quarters. Benefits from the depreciation of the rupee against the dollar, earn out reversals, cost optimisation measures, and the absence of one-off expenses are expected to have driven the margin expansion in the latest quarter, analysts said. Further, the steady staff utilisation, absence of a wage hike, controlled selling, general, and administrative expenses, and pricing growth will also lead to margin expansion, analysts said. Estimates for the expansion of EBIT margin ranged from 40 bps to 110 bps, with Mirae Asset Sharekhan expecting the highest sequential improvement of 110 bps.
The information technology company will announce its Oct-Dec earnings on Wednesday. Analysts expect investors to keenly watch out for the management's comments on the deal pipeline and conversion timelines, demand trends across banking, healthcare and technology verticals, and recovery of the high technology vertical. Hiring plans and attrition trends will also be monitored.
Investors will also look for revenue growth and outlook for the margin for 2024-25 (Apr-Mar), merger and acquisitions plans, and commentary on discretionary spending recovery and the 2025 IT budget.
On Tuesday, shares of the company closed at INR 5,896.70 on the National Stock Exchange, down 3.2%. The stock has risen nearly 3% since the announcement of the September quarter earnings post-market hours on Oct. 22.
Following are the Oct-Dec earnings estimates for Persistent Systems based on reports from 13 brokerage firms in descending order by the estimate of net profit:
| Brokerage firm | Net Sales | Net Profit | EBITDA | Revenue (mln $) | % EBIT margin |
| -----------in INR mln---------- | |||||
| Sharekhan Ltd. | 30,450.00 | 3,610.00 | -- | -- | -- |
| Kotak Institutional Equities | 30,476.00 | 3,564.00 | 5,325.00 | -- | -- |
| HDFC Securities Ltd. | 30,440.00 | 3,550.00 | -- | 360.00 | 14.60 |
| Motilal Oswal Financial Services Ltd. | 30,267.00 | 3,549.00 | 5,145.00 | 359.00 | 14.40 |
| JM Financial Institutional Securities Pvt. Ltd. | 30,403.00 | 3,542.00 | 5,217.00 | -- | -- |
| Anand Rathi Share and Stock Brokers Ltd. | 29,763.00 | 3,504.00 | -- | -- | -- |
| Nuvama Wealth Management Ltd. | 30,145.00 | 3,502.00 | 5,155.00 | 358.00 | 14.60 |
| Prabhudas Lilladher Pvt. Ltd. | 30,100.00 | 3,500.00 | -- | 356.60 | -- |
| Indsec Securities and Finance Ltd. | 30,000.00 | 3,500.00 | -- | 300.00 | 14.60 |
| Nirmal Bang Equities Pvt. Ltd. | 30,519.00 | 3,491.00 | 359.00 | 14.40 | |
| Emkay Global Financial Services Ltd. | 30,457.00 | 3,484.00 | 5,184.00 | -- | -- |
| KR Choksey Research | 29,532.00 | 3,432.00 | -- | -- | -- |
| Elara Securities (India) Pvt. Ltd. | 30,071.00 | 3,421.00 | -- | 356.00 | 14.50 |
| Average | 30,201.77 | 3,511.46 | 5,205.20 | 349.80 | 14.52 |
End
US$1 = INR 86.58
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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