Strong revenue growth, good demand environment and a healthy pipeline make Persistent poised to achieve more than 30% revenue growth rate in FY22 | Q2 Fy22 Conference Call

2 min read
  • The strong revenue growth, good demand environment and a healthy pipeline make Persistent poised to achieve more than 30% revenue run rate in FY22. It aims to achieve US$1bn revenue mark in the next 1.5-2 years.
  • Continued margin improvement for the 7th straight quarter: EBIT margin was reported at 13.9%, showing an expansion of 40bps QoQ and 180bps YoY. This was despite the impact of wage hike by ~230bps. As per persistent, this was offset by favorable pricing, operating leverage from higher revenue, better utilization (+270bps QoQ) and favorable onsite: offshore mix.
  • Company states that it wants to maintain 16-17% EBITDA margins while accelerating the momentum in growth.
  • Broad-based growth across all verticals, Europe market needs more visibility. Decline in share in Europe market is largely due to the ongoing vacation period, leading to loss of billing days
  • For Linear (Services) revenue, the offshore linear revenue grew by 12.4% on account of volume growth of 11.8% and growth in billing rate of 0.5%. The onsite linear revenue grew by 6% on volume growth of 8.9% and reduction in billing rate by 2.7%. The onsite bill rate decline QoQ is largely driven by a shift of volumes to near shore centers like Mexico rather than any decrease in rates in the US geography. It has also been driven to some extent by the lower share of revenues from Europe. Persistent systems believes that it will continue to see slight growth in the IP business in the short term but a decline is possible in the long run.
  • Persistent has stated that it plans to hire 2500-3000 freshers in the next 1 year to restructure the employee pyramid.
  • ESOP scheme launched:  Company has announced one of the most inclusive employee stock option plans in the Global IT services industry by allowing 80% of its employees to directly participate in the company’s success as shareholders. Considering the positive outcome out of the broader participation and sense of ownership by employees, PSL believes that the expense from ESOP (impact of 70-80bps) would be largely offset over time. Including this, the stock compensation expense will likely hit a number of 140- 150bps over the upcoming 24 months. About US$25mn has been set aside for the ESOP trust to buy shares from the market. These ESOPs will be on top of the current cash compensation that will be given to the employees.
  • Attrition control mechanism: The company has taken various proactive measures to control attrition, including the increase in engagement levels with employees, flexible working hours to help work-life integration, increase in fresh graduate intake, up-skilling of existing employees and helping people with long-term career development and planning with active learning & development. Persistent is also planning to send people from India to the US on H1-B visas once travel opens up – something many employees look forward to as a value addition.

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