PERSISTENT - Persistent Systems Limited Share Price

In their recent earnings call for Q4 FY25, Persistent Systems management provided an optimistic outlook, emphasizing their consistent growth trajectory despite macroeconomic challenges. Key highlights include the goal of achieving $2 billion in revenue by the end of FY27, with a full-year revenue of $1,409.1 million for FY25, representing an 18.8% year-on-year growth. The EBIT margin for the same period was reported at 14.7%, slightly up from 14.4% in FY24.

Management noted that Q4 revenues were $375.2 million, a 20.7% year-on-year increase, marking the 20th sequential quarter of revenue growth. They discussed a healthy order book with a total contract value of $2.1 billion for FY25. Importantly, the customer distribution showed growth across top client segments, with top five customers' revenue increasing by 35.3%.

Forward-looking metrics mention that the company is focused on continuing investments in AI capabilities, particularly through their proprietary SASVA platform, which drives automation in software development. The management also highlighted ongoing strategic partnerships with industry leaders, leveraging AI technologies.

In terms of operational performance, they reported strong client engagement with an increase in customers generating annual revenues exceeding $5 million from 40 to 55. Furthermore, the firm remains committed to maintaining a robust dividend policy, recommending a final dividend of Rs. 15 per share alongside an interim dividend of Rs. 20 earlier in FY25.

Overall, the management project sustained growth across their healthcare and BFSI verticals, despite some macroeconomic pressures, and expressed confidence in navigating future challenges while capitalizing on new opportunities in the market.

Major Questions and Answers from the Q&A Section

1. Question: "Do you see this as an opportunity, or do you think there are possible headwinds in these accounts?" Answer: From my perspective, while there are challenges due to Medicare costs and lower federal payments, we have managed to grow in the healthcare segment. We view these situations as avenues to help customers optimize costs. Therefore, I remain optimistic regarding our growth trajectory in healthcare despite possible short-term headwinds.

2. Question: "Could you talk a bit about discretionary spending in BFSI?" Answer: We've clarified previously that we are not reliant on discretionary spending. For example, our recent large win in financial services was due to vendor consolidation. Our solutions, like SASVA, are designed to drive productivity gains, enabling us to navigate through both good and tough economic cycles effectively.

3. Question: "Do you want to continue to invest in sales even if it means the margins don't improve?" Answer: Growth remains our top priority. I would say our EBIT margin has improved to 15.6% and, despite plans to invest in sales and marketing, we aim to grow responsibly without compromising our margin improvement goals.

4. Question: "Are you confident about your growth split between FY26 and FY27?" Answer: While we're on a clear path to our $2 billion goal by FY27, we don't provide specific forward guidance on quarterly splits. However, we can affirm our strategy to adapt and grow through changing macroeconomic conditions.

5. Question: "Will the offshoring from the healthcare deal yield margin benefits going forward?" Answer: Yes, offshoring does provide margin levers. Our entry run-rate is currently at a healthy 15.6%, and ongoing offshoring will indeed improve our margins through efficiencies.

6. Question: "What percentage of our incremental revenues is coming from SASVA?" Answer: We haven't disclosed exact figures for SASVA revenue contributions, but it propels significant deal wins. For instance, our data practice has grown by 56% over the past year, which illustrates SASVA's positive impact on our business growth.

7. Question: "Are there any implications of macro uncertainty on deal closures?" Answer: Yes, although we haven't faced cancellations, there's noticeable reluctance in decision-making. I expect that we might require a stronger pipeline to counterbalance this situation.

8. Question: "How are you viewing the potential for entering new verticals?" Answer: While non-presence in manufacturing and retail may insulate us, our main growth pivots will likely come from deepening our capabilities in existing verticals. We'll assess acquisitions if opportunities present themselves in new verticals.

9. Question: "What is your view on utilization rates?" Answer: We maintain an optimal utilization rate, which reflects both our strong hiring capacity and the high demand for our services. We are prepared to adjust according to macroeconomic conditions.

10. Question: "How has the GCC business evolved?" Answer: Our GCC business remains significant, albeit challenging to quantify. We have effectively collaborated with our customers to provide value across their GCC operations, enhancing our growth trajectory in this area.

These summaries capture the essence of the discussions and the strategic foresight expressed, reflecting the current operational environment.