Persistent Systems: Will the growth persist?

MUMBAI: The stock of Persistent Systems has yielded 57% return over the past year, bay and large outperforming the 5% gain in the ET Infotech index. The strong returns of the stock reflect the company's better financial performance. It delivered 32% growth in net profit and 29% increase in revenue for FY13.

Considering its increasing focus on income from intellectual property related business and expected recovery in the select telecom and healthcare sectors is likely to help the company stay on course in the current fiscal.

The Pune based mid-tier software solutions company has doubled its net sales in the last five years to Rs 1294.5 crore, growing at a compounded annual growth rate of over 17%. Net profit rose at a CAGR of 23% to Rs 187.6 crore during the period. The fast increase in the bottomline compared with the topline growth rate reflects improved profitability of overall operations.

Persistent has gradually improved its focus on revenue from intellectual property (IP) driven solutions, which supports profitability since it is less dependent on manpower addition. IP driven revenue contributed 17% to total revenue in FY13 compared with just over 5% in FY09.

The management has cited a strong order book to be executed in the coming quarters. In addition, the product related revenue is likely to improve now that the company has new platforms obtained through its acquisition of the technology from HP Client Automation in February.

Major verticals including telecom and healthcare are expected to perform well in the current fiscal. However, weakness in the system infrastructure, which contributes two-thirds to the topline, may hamper the growth in the coming quarters.