'A niche player like Persistent should be able to beat Nasscom's guidance'

Q&A with Anand Deshpande, CMD & CEO, Persistent Systems

Pune-headquartered Persistent Systems’ share price touched a new high at Rs 754 a share as the company continued to deliver a robust set of second quarter numbers. The company reported dollar revenue growth of 8.6% led by a robust uptick in its intellectual property (IP)-led business. The IP business grew 38% quarter-on-quarter. Anand Deshpande, CMD & CEO, Persistent Systems believes that a niche firm like his will do better than the Nasscom growth estimate of 12-14% for the fiscal 2014. In an interview with Shivani Shinde Nadhe, he talks about the demand scenario, growth drivers and traction in IP-led revenues. Edited excerpts…

 

The second quarter numbers are fairly strong. What was the driving force during this quarter?

 

Our IP-led offering grew 38% quarter-on-quarter. This was partly also helped by growth in the product and services segment that grew 3.5% sequentially, this was 5.5% last quarter. We are also seeing good traction in our platform business as well as good activity in the SMAC (social, mobility, analytics, and cloud) category. Our ongoing investment in this area and cost structures are also coming into play. We added 36 new clients during the quarter.

 

Is the 38% jump in IP business sustainable?

 

The IP business in general is lumpy. So expecting a similar 38% growth in IP over quarters is pretty hard. But on a yearly basis, you should see an upward move in the IP business. We expect the second half of the fiscal to do better in the IP business. For this quarter, IP contribution to the revenue is 19%. 

 

You had said in the past that IP-led revenues will be 25% in the next two years. After this quarter, do you think the company will change the revenue mix further?

 

I think 25% revenue from IP in the next two years is a fair number. According to the pipeline that we have, we think 25% is a good number. Last quarter, IP was 18%. This quarter, it is 19%. If we finish this fiscal at 20%, then IP-led revenue may go up further. 

 

EBIDTA for this quarter saw an improvement of 420 basis points. Was the rupee the main driver for the jump?

 

The rupee impact to the margins was 270 basis points. Since this quarter saw a jump in IP-led revenues, a majority of improvement in margins came from that. When you have a good IP driven quarter, it straight away impacts the bottom line. Plus, we also had improvement in utilisation during the quarter. (Utilisation (offshore) during the quarter was at 70.3% from 68.8% last quarter).

 

Do you think there is room for improving the utilisation?

 

Yes, there is room for improvement, but we are not pursuing it. We do see good demand for SMAC offering among customers and it is important for us to continue to invest in training, and in sales and marketing. There is lot happening in this segment and we want to be ready to tap this when the opportunity arrives. 
 

During this quarter, we had a net addition of 313 people and all of these were added into either of the four areas. As of end of September, we were 7,400 base. We will be adding another 500-600 employees during the next two quarters. We may end this fiscal at 8,000 employee base. 

 

Persistent will do better than Nasscom’s guidance of 12-14% for FY14?

 

Nasscom’s guidance is based on the larger IT services players. A niche player like Persistent should be able to beat this guidance. The overall market is looking good. While we have seen an uptick in demand for SMAC offering in small and medium enterprises, more and more large customers too are looking at investing in this area. We play in this area and I am upbeat about the opportunity in market. For us, the second half of this year will be better than the first half.