OPM fell 270 basis points to 14.7% which saw OP fall 20% to Rs 110.38 crore.

Other income grew 66% to Rs 32.09 crore and interest cost grew 129% to Rs 3 lakh. After providing for depreciation (up 7% to Rs 42.09 crore), PBT went down 15% to Rs 100.35 crore.

Provision for taxation grew 3% to Rs 26.64 crore after which PAT fell 20% to Rs 73.71 crore.

Y-o-Y results

For the quarter ended March 2018, on y-o-y basis, sales fell 5%. OPM fell from 16.4% to 14.7% which saw OP go down 15%. As other income grew 124% interest income grew 88% and depreciation went up 7%, PBT fell 4%.

EO loss was NIL against Rs 11.41 crore. Thus PBT after EO grew 7%.

After providing for tax (up 28%), net profit grew 1% to Rs 73.71 crore .

FY 2018 results

In FY 2018, Persistent Systems registered 5% rise in sales to Rs 3033.70 crore. OPM fell 70 basis points to 15.5% which saw OP grow 1% to Rs 468.73 crore. Other income grew 24% to Rs 119.10 crore and interest cost fell 13% to Rs 8 lakh.

After providing for depreciation (up 6% to Rs 158.49), PBT grew 4% to Rs 429.26 crore.

EO loss was NIL against Rs 11.41 crore. Thus PBT after EO grew 7% to Rs 429.26 crore.

Provision for taxation grew 7% to Rs 106.17 crore after which PAT went up 7% to Rs 323.09 crore.

Performance was impacted by the de-growth in IP-led revenue

The overall performance for the quarter ended March 2018, has been impacted by the de-growth in IP-led revenue as compared to the earlier quarter. This arose due to the fact that the IP led business is affected by the seasonality of typical robust performance in the last quarter of the calendar year followed by a relatively lower performance in the immediate following quarter.

The decline was larger-than-expected drop in its high-margin IP revenue (US$ 6.8mn qoq; decline in IP revenues), as was highlighted in the profit warning issued by the company on 27 March 2018.

This in turn has impacted EBITDA margin and performance of Alliance segment. The overall annual performance of IP-led business was however in line with the expectations.

As a result, EBITDA margins were also impacted, as these have higher than company level gross margins.

Outlook

Despite a weak Q4, the management believes that it is on track to deliver better-than-industry growth rate in FY19, as the drop in performance was more due to seasonality factors.

In the last two years, focus on digital has helped build capabilities in key technology areas and experience in helping customers as they transform to being software driven businesses.

Looking ahead, the company is doubling down on three industry markets – Financial Services, Healthcare & Life Sciences and Industrial IoT in addition to its strong presence in Software and Technology.

The company also expects profitability to improve, as it would see superior growth and optimization in the Alliance business which has started offshoring in the team that it acquired.

The management plans to increase investment in sales relative to investments in R&D to increase traction of its existing product sales (IBM and PSL IP).

PSL's inclusion in the IBM reseller list and expansion of its sales team will help it to reach out to IBM clients in Europe, directly boosting the company's revenue growth prospects.

Valuation

The share price trades at Rs 735.