Categories Concall Highlights, Earnings, Technology

Persistent Systems Ltd Q3 FY23 Earnings Conference Call Insights

Key highlights from Persistent Systems Ltd (PERSISTENT) Q3 FY23 Earnings Concall

Management Update:

  • [00:05:33] PERSISTENT said it deployed 600 plus freshers and in 1H23 onboarded 3,000 plus freshers. The company added that it was an important margin lever in 3Q23 and will continue to provide tailwinds on the margin front going forward.
  • [00:06:23] TTM attrition was 21.6% in 3Q vs. 23.7% in 2Q. PERSISTENT expects TTM attrition to continue to moderate in future.

Q&A Highlights:

  • [00:25:13] Abhishek Bhandari asked about the levers for improving margins medium term by 200-300 bp. Sandeep Kalra CEO answered that medium term is the next 2-3 years and the levers for that are the scale of revenue, bringing freshers at scale to build own talent pipeline and client mining efforts.
  • [00:27:21] Bhavik Mehta enquired about the sustainable levels of margins in FY24. Sandeep Kalra CEO answered that the endeavor to do incremental progress will not be at the cost of growth. Therefore, PERSISTENT will make sure it has good growth in all macroeconomic circumstances.
  • [00:27:43] Bhavik Mehta asked about hiring slowing down over last few quarters, but given the deal wins, if hiring ramp up is needed. Sandeep Kalra CEO said there has been significant investment from hiring and training. The intent is to deploy them and the goal is to create a longer term cycle. Focus for the next few quarters is to take the inventory and keep bringing in the number of laterals that’s needed.
  • [00:30:30] Manik Taneja enquired about tailwinds from price increases over last couple of years and how it will play out in next couple of years. Sandeep Kalra CEO replied that the company doesn’t think the market will be very ripe to do a lot of price increases in the next 6-12 months.
  • [00:33:55] Abhimanyu Kasliwal asked about the jump in other income in 3Q23 and if it’s sustainable and the component of it. Sunil Sapre CFO said it has two components; income on surplus funds and forex gain. Against a loss of INR9 crores forex loss in 2Q23, in 3Q23 there was a gain of INR10 crores which reflected the jump in other income.
  • [00:43:10] Ravi Menon asked about the deal won with vendor consolidation and who are the vendors that are getting consolidated. Sandeep Kalra CEO said it’s local subcontracting outfits who are at a bit higher billing rates and also the part of the move offshore, as mentioned.
  • [00:43:54] Mohit Jain asked if the company is seeing any difference between ACV vs. TCV. Sandeep Kalra CEO answered there is nothing to read into the ACV, TCV difference. The more longer-term deals PERSISTENT does, the TCV will be much higher than the ACV. PERSISTENT added it’s comfortable with the ACV and pipeline conversion rate is healthy.
  • [00:49:35] Abhishek Sharda asked about company’s view on attrition rate and is lower headcount addition a sign of weakness in demand. Sandeep Kalra CEO said the attrition rate is stabilizing and demand for talent in several buckets is moderating. PERSISTENT is not seeing lower headcount as a weakness, but it’s moderated between fresher deployments and laterals.
  • [00:51:14] Vibhor Singhal enquired about top clients bottoming out and the endeavor going forward. Sandeep Kalra CEO replied that PERSISTENT is confident it will turn its top customer’s growth around over next several quarters. The top was 25% or more of revenues, but in the last quarter it was 7.4%. The goal is to grow all customers and not be overly dependent on any one customer.
  • [00:53:17] Nitin Padmanabhan enquired about Accelerite business and how it’s evolving. Sandeep Kalra CEO answered that that business is growing as it provides customers with a roadmap with the products, sell services and solutions, and repurposes the IP. These activities are helping to maximize the return from Accelerite.
  • [00:53:37] Nitin Padmanabhan also asked that on a going forward basis if the furlough-related weakness is largely over, or continued headwinds are expect in future. Sandeep Kalra CEO said headwinds are expected to continue, but there is an opportunity for a win-win for customers and the company if silver lining of macro issues in the market can be identified.
  • [00:55:58] Madhu Babu enquired what percentage of the portfolio is higher-risk of the macros and can a 3.5-4% growth be maintained over the next few quarters in a slowdown. Sandeep Kalra CEO replied that PERSISTENT is working closely with its customers to understand their thought process on macroeconomic conditions and how PERSISTENT can best support them. The goal is to grow in the top quartile of the industry and ensure that the growth matches or exceeds the average of the industry.
  • [00:58:49] Anmol Garg asked about the Europe outlook for FY24. Sandeep Kalra CEO clarified that over the last 3-4 quarters, Europe has contributed $100 million+ in transaction value for big deals alone. PERSISTENT has invested in sales and sales leadership in the region. The company is optimistic that Europe will grow at the company average.
  • [01:00:13] Sameer Dosani asked about outlook on the second largest client. Sandeep Kalra CEO replied that the second largest customer has been a stable and fair customer, with good relationships in business units since around 2010-2011. The future is unknown but the relationship has been good.

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