Persistent Systems Shares Gains 4% on Healthy Q2 Earnings

Persistent Systems share price rose by nearly 4% in early trade on 19-Oct-2023, after its impressive earnings report for the September quarter. Persistent Systems recorded a 20% year-on-year increase in net profit, along with a 15% sequential increase in Q2. Additionally, the company's revenue also saw a 9.4% year-on-year increase and a 4% sequential increase, reaching ₹2,448 crore. In Q2FY24, profit after tax (PAT) increased by 19.7% year-on-year to ₹263.27 crore, up from ₹220 crore in the corresponding quarter of the previous year.

Earnings for July-September were largely driven by strong deal wins during the quarter and reported its highest-ever deal win, with a total contract value (TCV) of $475 million, marking an increase from the previous quarter's $380 million. Approximately 80% of the company's revenue comes from the BFSI (Banking, Financial Services, and Insurance) and hi-tech sectors.

Margin and Outlook

The only drawback in Persistent's Q2 results was a slight decline in its EBIT margin, dropping from 14.9% in the previous quarter to 13.7%. However, the company expressed optimism that this would improve in the coming quarters and set a goal to expand margins by 200-300 basis points over the next two to three years. In contrast to the broader IT market, which has faced pressure, Persistent Systems has been a standout performer, with its shares soaring over 50% in the current year.

Read Persistent Systems Q2 Results FY2024

Price Movement & Employee Metrics

Following the positive Q2FY24 earnings report and strong order bookings, Persistent Systems' share price surged by over 4%, it opened at ₹5,784.65 on BSE and reached intraday highs of ₹5,949, nearing its 52-week high. According to analysts, Persistent Systems is in a strong momentum, and prices can potentially move towards ₹6,200 in the near term, with support at ₹5,750.

Persistent's attrition rate on a last twelve-month (LTM) basis decreased from 15.5% in the previous quarter to 13.5%, reflecting positive trends in employee retention. However, net headcount addition declined by 288 employees, resulting in a total headcount of 22,842 for Q2.

Management Commentary

Sandeep Kalra, the CEO and executive director of Persistent Systems, expressed the company's proactive approach and adaptability in navigating the uncertain macroeconomic environment. He attributed the highest-ever total contract value (TCV) of over $475 million to the company's capabilities in digital engineering and enterprise modernization.

Sunil Sapre, the CFO of Persistent Systems,  plans to reduce the number of new graduates to hire in FY24 due to challenges in the IT industry caused by economic uncertainties. Last year, persistent hired over 3,000 fresh graduates but aim to hire fewer than 1,000 in FY24, facing difficulties in closing deals and getting them up and running due to these economic uncertainties. However, persistent has a healthy pipeline of potential deals, and their Total Contract Value (TCV) reached USD 475 million in the September quarter, the highest ever for three months.

Stock Performance

Persistent Systems' share price has shown positive trends in recent times. In the past month, the stock has gone up by 1%. Looking back over the last six months, the stock has risen by an impressive 36%. Zooming out to the past year, the stock has given a 57% return to its shareholders.

However, if we expand our analysis even further and look at the performance over the last 5 years, The stock has delivered an incredible 950% return during this period. This indicates an exceptional growth in the value of the stock for investors who have held it over the long term.

Final Words

Persistent Systems' strong performance in Q2FY24, with record deals, wins, and healthy financials, highlights its resilience and competitiveness in the IT sector. Despite a minor decline in EBIT margin, the company remains optimistic about future growth, making it a notable outperformer in the IT industry.