Persistent Systems tumbles on weak guidance for June quarter

Venkatasubramanian K BL Research Bureau | Updated on January 24, 2018

There is likely to be some margin pressure in the near term

The stock of Persistent Systems once again faced heavy correction as the management indicated that June quarter earnings are likely to be muted. On Wednesday, the shares of the company slumped more than 13 per cent at ₹628.10 on the NSE.

Even in the March quarter, the company had cautioned investors on the likely challenges in growing its topline, as a result of which the stock had corrected 20 per cent.

Persistent Systems has issued guidance for a marginal decline in dollar revenues for the June quarter.

What may have disappointed the markets more is the fact that the June quarter generally tends to be the strongest for most software players.

The company, which has been consistently growing at a rate that is at least 3-5 percentage points faster than the industry over the previous years, just about managed to catch up in FY15. During 2014-15, Persistent Systems’ revenues rose 13.3 per cent, while net profits increased by 16.6 per cent.

Valuations drop

The decline in price has meant that the company’s shares now trade at just 15 times FY16 earnings, which is much lower than the 18-21 times that the stock has commanded in the past few years. But given the overall negativity around the IT sector, together with company-specific concerns, there may be no rush to buy the stock at these levels.

While Persistent has indicated that some of its customers are reorganising their businesses due to which there is revenue weakness, its investments in sales and marketing are expected to continue.

Also, with more H1B visas applied for in the current quarter, there could be more onsite deployment. So, there is likely to be some margin pressure in the near term.

Published on June 24, 2015

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