Supply-side concerns remain but management remains confident of delivering sustainable margin in the near term because of strong growth and better utilization | Persistent System Q3FY22 Conference Call Highlights

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· Persistent reported INR revenue of 1,491.7 Cr, up 10.4% QoQ, up 38.7% YoY and USD revenue of 199.1mn, up 9.2% QoQ, up 36.2% YoY.

· EBIT margin 14%, up 10bps QoQ. Gross margin improved by 24 bps q-o-q to 33.8% in Q3FY2022 despite strong hiring over the past four consecutive quarters, aided by higher utilization and strong revenue growth. EBITDA margin improved by 23 bps q-o-q to 16.8%.

· Supply-side concerns, replenishment of attrition with higher-cost lateral resources, ESOP expenses, and integration impact of recent acquisitions are expected to weigh on margins. However, management remains confident of delivering sustainable margins in the near term because of strong growth and better utilization. Management hopes margin would continue to expand in the medium term, given reduction in sub-contractor expenses, better operating leverage, and a flattening pyramid.

· INR PAT of 176.4 Cr, up 9.1% QoQ, up 45.9% YoY

· Revenue growth by business offering: Services grew 8.3% QoQ and 40% YoY and IP led grew 15.9% QoQ.

· Revenue growth by segment wise (%, YoY): BFSI grew 48.9%, Healthcare & Life Sciences grew 47.9% and Software, Hi-Tech & Emerging Industries grew 22.3

· The company launched an ESOP (Employee stock ownership) plan for a large base of employees, covering 80% of its total employee base. This would impact margins in the near term.

· Total TCV (Total contract value) stood at USD334.3mn compared to USD282.5mn in last quarter. New business TCV was USD157.6mn compared to USD149.3mn.

· Attrition to remain high for next couple of quarters. Introduced broad-based ESOP schemes and currently for 80% of employees. Promotions has also been taken into consideration. Attrition rate for the quarter stood at 26.9%.

· It has successfully closed the acquisition of SCI and its affiliate Fusion360, as well as Shree Partners.

· Total headcount for the quarter was at 16,989, net headcount addition of 1,110. Blended utilization for the quarter stood at 83% while Global Delivery Centres and India stood at 86.1% and 82.5%, respectively.

· Guidance:  To achieve its goal of $1 billion revenue run-rate in the next 4-6 quarters, which implies a CAGR of 4.7% to 7.9%.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell stocks or MF.

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