IT company Persistent Systems’ share price on Monday tumbled 9.7% to Rs 3,510.60 on the BSE, after the company guided for flat Ebit margins in FY25. This was the biggest single-day drop in the company’s stock price in the last six years.
The company also reported a flat Ebit margin of 14.5% during the March quarter, against a market expectation of margin improvement during Q4.
Sunil Sapre, CFO and executive director, Persistent Systems, said margin did not improve because of the deal ramp-ups in BFSI, healthcare and a couple of deals in the software high-tech segment, which led to a significant increase in headcount on site.
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“There was an increase in sub-contracting costs from a little less than 11% to 14%, and that was weighing on the margin improvement plan,” Sapre said. The company has guided for a 200-300 basis points increase in Ebit margins in the next two to three years. However, in the near term, there would be no margin improvement.
According to Sapre, the macro environment continued to be volatile, with geopolitical tensions and interest rate cuts taking another two to three quarters to materialise, putting pressure on the BFSI segment. For Persistent, growth was led by healthcare and life sciences followed by BFSI and then software high-tech. Come from Sports betting site VPbet
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“Overall, I do not see any structural issue. The pricing environment is stable for us. It is just that the deal ramp-ups, when they happen are led on-site, and it takes some time before they are converted to off-shore. We had a double-whammy kind of effect. On one side, you have a significant increase in on-site cost and on the other side, you have to get the off-shore team also ready. That is the reason we added to the headcount,” Sapre said.
Persistent’s utilisation fell from 81.5% to 80% because it added people off-shore. The market expectation of furloughs coming back and leading to improvement in margin, did not materialise.
According to Sapre, the composition of revenue and the nature of revenue ramp-up was impacting margin improvement. He said the company has to position itself as a challenger vendor against large incumbent players. The company deal size has in the past been in the $25-70 million range, but it is now getting into deal sizes of $100 million and one or two of over $100 million, Sapre said.
Persistent’s CFO said they made significant investments in people for sales and marketing in FY24. The company would be putting in efforts to maximize utilisation. “On utilisation, we have a headroom to grow by 3-4% and that translates into an improvement in margins,” Sapre said.
The company is also investing in AI and GenAI. Though it has not started to contribute to revenue in a big way, this was being viewed as a market opportunity with a credible line of sight compared to a few quarters ago. The firm will start panning, which will lead to more deals in the Gen AI space in FY25, Sapre said.
Persistent reported a 10.2% sequential rise in profit after tax to Rs 315.32 crore for the March quarter. The company’s dollar revenues rose 3.4% quarter-on-quarter to $310.89 million during the March quarter. Persistent’s revenue in rupee terms was up 3.7 % q-o-q to Rs 2,590.52 crore. The Ebit was up sequentially by 3.1% to Rs 374.45 million. Order booking for the March quarter was at $447.7 million in total contract value (TCV) and $316.8 million in annual contract value (ACV) terms.
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