Persistent again delivered industry leading growth on revenue and profitability, but it still has potential to grow.
- Already hit $1 Bn revenue runrate based on Q2 annualized, I was expecting it later in this year- TTM was $914Mn ( 766 for FY22 and 566 in Fy21).
- Revenue Up 40 % , PAT is up 36 %, some margin pressure is evident, but less than peers.
- Their EBIT has gone to 14.6 from 14.3 %, but PAT dipped to 10.7 % from 11.3 % one quarter ago ago.
Psys now shows the signs of the virtuous cycle of higher revenue> incoming leads>more conversions>more revenue/margins.
Worries:
1 Integration of the acquisitions, Persistent needs to ensure the business and employees of the acquired companies stay, often services acquisitions (unlike product where you get tangible IP and sticky Customer base) just get wasted as people leave.
2 They are highlighting the Stock price performance, and inclusion in Indexes, instead of focusing on the business performance.
3 Attrition is flat and remains a major concern, this quarter was 23.7%, FY22 avg was 26.6% . Persistent has niche skill needs, they will not find replacement easy.
4 IP led business (higher margin, more scalable) has been steadily declining in the last few quarters.
5 Higher exposure to High Tech vertical, which can get impacted badly in the coming months with US recession and revenue slowdown in tech sector which is becoming very visible.
Investor PPT: https://www.persistent.com/wp-content/uploads/2022/10/analyst-presentation-and-factsheet-q2fy23.pdf
Disc: Psys is still my biggest holding (despite being down 25 % from Peak), I have not sold any, valuations have moderated, I did add a little on valuation corrections recently.
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