>PERSISTENT SYSTEMS: Macro uncertainty, no upside triggers

• Persistent continues with it’s focus on growing business through partnerships/’sell with’ (~10% of revenues currently) which per company comes at better than co margins as well
• Aligning sales force accordingly as company targets to improve mining within existing client base for traditional OPD basis along with the thrust on new business areas
• FY12 guidance lowered to US$ 205-210 mn (V/s US$ 220 mn earlier) as expected. EPS outlook revised to Rs 31.3-33
• We lower US$ rev estimates, however lower currency resets limit FY13E EPS cuts to ~3% to Rs 33.3. Valuations at ~9x FY12/13 remain inexpensive but we see no positive catalysts

■ Continuing to focus on new technologies, ‘sell with’ business
Persistent management reiterated it’s key focus in the areas of cloud computing, Enterprise Collaboration, Mobility and Analytics. It continues to align it’s sales force along the revised strategy of targeting growth through the ‘sell with’ business through partnerships with global technology players like Cisco, Salesforce.com amongst others. The company remains confident of gaining further traction with the partnership approach as it helps it to gain entry into several marquee names as well as provides better than co wide margins. Within the core OPD business, Persistent intends to mine the existing client base effectively and grow the top accounts. (we note that Persistent’s revenues from top 5 clients have grown by ~40% CAGR V/s 15% for company over FY09-11, refer table below)


■ Revenue guidance cut as expected, PAT outlook lowered to Rs 1250-1350 mn
As expected, Persistent lowered it’s FY12 revenue guidance to US$ 205-210 mn (V/s ‘atleast US$ 220 mn ‘earlier) citing consolidation in some top accounts and delays led by macro uncertainty. Profit outlook has been revised lower to Rs 1,250-1,350 mn (implying EPS of Rs 31.3-33) V/s flat profits despite lower currency aid. We believe a volatile and weak spending environment impacts players like Persistent much more given the nature of work. In this context, we highlight that Persistent intends to go slow on hiring indicating cautiousness on client spending ahead


■ Another cut in earnings, retain HOLD
We moderate our US$ revenue estimates further, however lower currency resets (we reset our US$/INR assumptions for FY13 to Rs 49.5/$ V/s Rs 48/$ as per our economist’s revised currency estimates) limit cut in FY13E earnings to <3% to Rs 33.3. Valuations at ~9x FY13/14E earnings remain inexpensive; however we see no catalysts for any upsides. HOLD, TP Rs 320 (V/s Rs 310 earlier)
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