Persistent systems hosted conference call on July 21,2023. In the conference call the company was represented by Dr Anand Deshpande-CMD, Mr Sandeep Kalra-CEO and Mr Sunil Sapre-CFO.

Key takeaways of the call

Revenue stood at US$ 282.9 million up 2.9% QoQ. Growth was led by IP business which was up 8.0% QoQ, while Service business grew by 2.7% QoQ.

EBITDA margin stood at 18.2% in Q1FY2024 down 30bps QoQ.

EBIT margin came in at 14.9%, down 50 bps QoQ. In Q1, there were headwinds from H1B visa costs to the tune of 40bps, work from office related food and travel cost to the tune of 20 bps and higher depreciation and amortization cost of 10 bps. Software and licenses cost increased as the company invested in strengthening its own cyber security and defense. It also had one time expenses related to celebration of milestone (crossing US$ 1 billion revenues) of RS 48.2 crore.

The company expects FY2024 EBITDA margin to remain stable when compared to FY2023 and reiterated its aspiration of 200-300 bps EBITDA margin improvement over next few years.

The focus is on driving healthy and profitable growth with continued investments in S&M, AI, Cloud and Security.

Human Resource:

The company added 241 employees in Q1FY2024.

Attrition moderated sharply to 15.5% down 430 bps QoQ.

The company rolled out wage hike in Q1FY2024with 7.5% hike in India and 3.5% hike outside India. The company has also rolled out regular performance bonus. Inpact of wage hike on margin is expected to be seen in Q2FY2024.

Utilization stood at 78% and aims to increase it to 83% going forward on back of fresher pool being retrained and redeployed to the billable projects.

The company has penetrated into the tier-2 and tier-3 cities in order to have better pyramid rationalization benefits, which would again be the incremental margin levers apart from deploying fresher talent pool.

The company plans to onboard 800 additional freshers in Q3 and Q4FY2024.

Deals: TCV stood at US$ 380 million  in 1QFY24, down 10% QoQ and up 4% YoY. Net new TCV stood at to US$ 237 million vs a record high of US$ 250 million in Q4FY2023. ACV was at US$ 272 million vs US $ 310 million in Q4QFY2023.

Within healthcare vertical, the company won a five-year large deal of US$ 50 million.

Deal TCV was muted in Q1 as few deal conversations got pushed from Q1 to Q2FY2024.

Generative  AI investments:

The company has announced partnerships with leading hyper scalars to help them in their gen AI strategy. The company also won a deal for developing generative AI proofs of concept and building database connectors for server less data integration for a multinational technology company.

The company is using tools like Amazon code whisperer and Microsoft Gen AI tools for training its own employees and improving productivity in software development.

The company plans to train 1,600 employees in gen AI in coming quarters.

Outlook:

The company is witnessing a stressed environment resulting in few instances of deal pushouts and deferrals in Q1FY2024 on account of enterprise clients maintaining a cautious approach in the near-term.

Clients are slowing down discretionary spends and focusing on conserving costs as they are concerned about uncertain macros.

The company expects to deliver top quartile growth on the face of macro uncertainties. The company remains watchful of a slowdown in the key economies, while maintaining a close proximity to the customers, who are cost focused and to drive efficiency.

BFSI is expected to remain soft despite the healthy growth reported in Q1, while healthcare and Hi-Tech are likely to continue their growth momentum. On BFS vertical, the company has witnessed some deal pushbacks as the decision making has been delayed and projects are not seeing timely ramp ups.

The company expects the near-term slowdown to continue for 2-3 quarters more before the deal signing activities revert to the earlier level

Management commentary:

Commenting on the performance Mr Sandeep Kalra , CEO said: “We commenced the year by celebrating a significant milestone of surpassing $1 billion in annual revenue with our clients, partners, and team members. As we enter our new fiscal year, I’m pleased to share that we have sustained our growth momentum despite the challenging macroeconomic conditions. Our Digital Engineering leadership, extensive experience across key industries, curated partner ecosystem, and the ability to stay ahead of disruptive technology trends has led to our ongoing success.

We also want to extend our warm welcome to Dr. Ajit Ranade, a renowned academician, corporate executive, economist, and thought leader, as an Independent Director to our Board. He will bring his impressive experience of 32+ years to help guide our strategy and accelerate our growth journey.