Persistent Systems

Despite headwinds in the IT sector, the company, with its deep expertise and technological innovations, has remained ahead of its peers and can claim to have robust orders in the pipeline.

Persistent Systems Limited is a multinational corporation that specialises in software products, services and technological innovation. The company provides complete product lifecycle services and delivers services at all stages of the product lifecycle, allowing it to work with a diverse range of customers and develop, enhance and deploy its customers’ software products. The company was formed on May 30, 1990, and on September 17, 2007, it was converted to a public limited company with its name changed to Persistent Systems Limited. The company has extensive experience in telecommunications, life sciences and infrastructure and systems.

The company has a global presence in 17 countries, including India, Australia, Canada, Germany and Japan. It collaborates with IT behemoths such as AWS, IBM, Salesforce, Red Hat, Microsoft, Appian, Google, Snowflake, Workato, and others. Persistent Systems was named the leader in customer and delivery excellence in BFSI, HCLS, North America and APAC in 2020. The company’s strategic investments in cutting-edge technologies such as cloud, data and artificial intelligence have helped to strengthen its position in the digital engineering space.

Its acquisitions of Media Agility and Data Glove have helped it strengthen its industry-specific capabilities, including hyperscaled offerings, as well as its emerging technology offerings. This, combined with its strong presence in BFSI, enterprise and consumer software and health technology has helped it cement its leadership position in Zinnov Zones’ 2022 ER and D services ratings. Recently, the company also collaborated with Microsoft to accelerate its growth and leverage Microsoft technologies for richer employee engagement, faster decision-making and the development of innovative industry solutions.

Sector Overview

The information technology (IT) sector has emerged as one of the most important growth engines for the Indian economy, contributing significantly to the country’s GDP and public welfare. In FY22, the IT sector contributed 7.4 per cent of India’s GDP and is expected to contribute 10 per cent by 2025. According to the National Association of Software and Service Companies, the Indian IT industry’s revenue in FY22 reached USD 227 billion, a 15.5 per cent increase from the previous year. Foreign direct investment in India’s computer software and hardware sector totalled USD 88.94 billion between April 2000 and June 2022. 

The sector ranked second in terms of FDI inflows, according to data released by the Department for Promotion of Industry and Internal Trade (DPIIT). Due to the Digital India Programme’s solid foundation of digital infrastructure and enhanced digital access, the current emphasis is on the creation of significant economic value and citizen empowerment. India has one of the world’s fastest rates of digital adoption.

This was accomplished through a combination of government action, commercial innovation and investment, and new digital applications that are already improving and permeating a diverse range of activities and types of work, positively impacting citizens’ daily lives. The Union Budget 2022-23 allocated `88,567.57 crore to the IT and telecom sector. India is the world’s most popular offshoring destination for IT firms. Following the demonstration of its ability to provide both on-shore and off-shore services to global clients, emerging technologies now provide a completely new set of opportunities for top IT firms in India.

Financials

For the quarter ended December 31, 2022, Persistent Systems reported total revenue of ₹2,169.37 crore, rising 45 per cent from last year’s same quarter’s revenue of ₹1,492 crore. The EBITDA stood at ₹401.56 crore, rising about 60 per cent on a YoY basis. The company reported a net profit after tax of ₹237.95 crore in the latest quarter which rose by 35 per cent from the corresponding quarter last year. On a sequential basis, the revenue rose by 6 per cent and EBITDA increased by 9.1 per cent whereas net profit increased 8 per cent.

Its revenue growth was impressive but was impacted by seasonal furloughs, less working days, and certain clientspecific ramp-downs in their top client. For the order book, Q3 was a record high for it in order of TCV order wins. The total contract value for the quarter came in at ₹3,641 crore with new booking TCV coming in at ₹1,977.73 crore, which implies a robust growth in TCV of 20 per cent on a quarter-on-quarter basis, more than 30 per cent on a year-on-year basis. 

Q3 is the quarter in which the company usually declares an interim dividend. The company continued the trend as it declared an interim dividend of ₹28 per share for FY23 on the face value of ₹10 per share. It is the company’s constant endeavour to maintain a consistent dividend pay-out ratio while it augments growth through capability-led acquisitions. All its acquired businesses over the last four to five quarters have now been fully integrated and each one of them has shown good growth including contributions to its go-to-market and operational synergies. 

The teams have come together as one to win large deals in financial technology, insurance, healthcare, consumer technology and retail sectors. The company looks for tuck-in acquisitions to expand its geographical markets and complement current capabilities. Coming to segmental growth for the quarter, BFSI grew 2.6 per cent, healthcare grew 3.1 per cent and technologies grew 4.2 per cent on quarter-on-quarter basis. In summary, the company is pleased with its performance in Q3FY23 with continued healthy revenue growth, record high wins across their focus industry segments, good pipeline and improving profitability despite the macro headwinds. 

Outlook

Today, everyone's life experience is software-driven and cloud-enabled, particularly business experience. In this environment, their distinct Digital Engineering expertise and dependable delivery will be critical to their client's success. They will continue to identify new investment areas needed for this new digital reality, ensuring maximum returns on all fronts, while anticipating and meeting their clients' everchanging needs. According to the company, some of its clients are reprioritising work, particularly on cloud transformation deals, rather than cutting spending, which is causing some headwinds. Due to the challenges of inflation and geopolitical risks, businesses around the world are attempting to conserve cash, while companies are looking to shift as much work as possible offshore. This is where Persistent Systems stands to benefit. Recently, a leading online retailer in the United States selected the company to establish a dedicated global technology centre across multiple technology tracks, including infrastructure and platforms, marketing technologies, search and recommendation, and fintech and loyalty

The company stated that it is experiencing some headwinds as a result of a few of its clients reprioritising work, particularly on cloud transformation deals, rather than cutting spending. Enterprises around the world are attempting to conserve cash as a result of the challenges of inflation and geopolitical risks while companies are looking to shift as much work as possible offshore, where Persistent Systems stands to benefit. The company was chosen by a leader in online retail in the United States to establish a dedicated global technology centre across multiple technology tracks, including infrastructure and platforms, marketing technologies, search and recommendation, and fintech and loyalty. 

Persistent Systems was chosen by a global technology leader that has some of the most well-known brands used by millions of people around the world. In banking, financial services, and insurance it was chosen by a leading HR applications development platform company to support the development of next generation HR applications and to improve the quality of existing features for a leading platform. Persistent Systems was chosen by one of the largest banks in the United States to transform the legacy check platform and enable cloud readiness in order to future-proof the business. 

This is yet another example of the synergy between its payment business unit and the SCI acquisition. Persistent Systems was chosen by one of the world’s largest instrumentation companies to modernise its technology stack and streamline its customer order orchestration financials and warehouse management platform. This is a multi-year, multi-million dollar deal that takes advantage of its low code-no code expertise.

Persistent Systems was selected to leverage enterprise integration expertise to improve service quality and delivery for one of the world’s largest multinational medical device and healthcare companies. This is another multi-million dollar, multiyear deal. The company’s services continue to gain traction among its client base, as evidenced by new deal wins and logo additions at scale. It continues to monitor the macroeconomic situation and is proactively staying in touch with its customers, assisting them in prioritising their technology spending toward transformation and cost optimisation, and it remains optimistic about growth momentum. Hence, we recommend BUY.