Widely read:
It is no longer news that the Indian IT industry is facing a challenging business environment. Higher employee costs, shrinking margins, and the slowdown in the US and European economies have impacted the entire industry. But, despite these challenges, Persistent Systems has managed to report consistent growth over the last five years.
Consistently improving financials
Persistent Systems has continuously reported bottomline and topline growth
| Metric | FY23 | FY22 | FY21 | |
|---|---|---|---|---|
| Revenue (Rs cr) | 8,351 | 5,711 | 4,188 | |
| Operating profit (Rs cr) | 1,286 | 937 | 616 | |
| Operating profit margin (%) | 15.4 | 16.4 | 14.7 | |
| PAT (Rs cr) | 921 | 690 | 451 | |
| ROE (%) | 26.4 | 23 | 17.7 | |
|
PAT is profit after tax ROE is return on equity |
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A quick glance at their financials paints a striking picture. The company has consistently reported sequential growth in quarterly revenue and PAT since Q1 FY21. As a result, its stock price has skyrocketed with an annualised return of 82.4 per cent in the last three years.
Diverse portfolio
Now, what exactly does Persistent Systems do?
Well, they've got their fingers in three different pies. They operate major segments like BFSI, healthcare, and software & hi-tech solutions. They are a one-stop shop for a variety of tech needs. Whether it be cloud computing, data analytics, software product development, cybersecurity, or the latest buzz, generative AI, they've got it covered. They've even partnered with major cloud providers like Google , Amazon , Microsoft , Salesforce , and others, creating an ecosystem that spells success.
Expanding horizons
But it's not just about sticking to the script. Persistent Systems has shown a knack for thinking outside the box and making significant strides in its inorganic growth. Since FY21, the company has acquired eight companies across the US, Europe and India. Names like Data Glove and MediAagility stand out.
This has allowed the company to further expand its operations in both existing and new markets and thus in turn, attract new clients. The world's gradually becoming their oyster.
The BFSI boom
While all the segments have reported double-digit growth thanks to the acquisition of new clients and inorganic growth, the BFSI segment has grown the most, with a three-year annual growth rate of 37.4 per cent. The reason is the company's focus on the insurance sector, which has not faced any issues.
While the banking sector of the US and Europe has decreased its IT expenditure, the insurance companies have still registered growth. As a result, Persistent Systems' strategy to launch new services and acquire clients in the insurance sector has paid off well in the last few years.
Perfecting profitability
Numbers don't lie. The company reported a total of 38 high-value deals, each of them over $5 million in the recent quarter, against 10 in Q1 FY20. Higher deal size, increase in total clients and ease in employee expense as a percentage of revenue have resulted in a jump in the profitability of the company.
The EBIT margin has improved significantly, from 11.6 per cent in FY19 to a robust 14.8 per cent in FY23. Moreover, their revenue concentration from the top ten clients has reduced significantly from 51.8 per cent in FY19 to 36.7 per cent in FY23. This signifies revenue diversification and a reduction in the company's risk.
The future outlook
So, what's on the horizon for Persistent Systems?
The firm has grown consistently through the ups and downs of the economy. Strong and long-standing business partnerships, along with sound acquisitions, have contributed to business expansion.
However, the competitive business environment and a shaky US and European economy can pose serious potential challenges. Currently, the company derives around 80 per cent of its revenue from the US, and it has already reported a minor fall in the operating margin in the latest quarter, which may continue in future because of the macroeconomic environment.
Also read: Hindustan Aeronautics: The high-flying PSU
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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