Persistent Systems slips nearly 14% intraday on muted outlook for June quarter

NEW DELHI: Persistent Systems Ltd slipped as much as 13.91 per cent in trade on Wednesday, after the midcap IT company in a filing with exchanges said that they expect decline in revenues for the quarter ended June 30 (1QFY16) along with decline in margins.

The stock ended the day 12.68 per cent lower or Rs 91.35 at Rs 628.9.

"The weakness in our current engineering business coupled with the quarterly variability associated with our IP business, could result in marginally lower USD revenue for this quarter as compared to the previous quarter," Persistent Systems said in a filing with BSE.

Analyst at one of the top brokerage firms say that margins are likely to slip by over 100 bps and the stocks could slide by as much as 10 per cent.

"We understand that the decline is led by continued sluggishness in a couple of large accounts in the Product Engineering business (58% of revenues), and in one of the IPs which was weak in 4QFY15 too," Motilal Oswal said in a note.

"Margins will see 150bp headwind from visa costs and additional pressure from increased investments in S&M and R&D, offset partially by INR depreciation," added the note.

The brokerage firm is of the view that the new growth rate for FY16 works out to 11%. They expect FY16/17 EPS cut of 8%/5%. The stock is trading at 18x/14.5x on these revised estimates and could correct by 10%.

However, the management sees good traction from the new customers in the product engineering business. They has also recently acquired a product called Convirture which enables unified management for multiple virtualisation and cloud environment.

The company further added in its filling that they are looking to acquire a few more products to grow their IP revenues.