Persistent Systems said its full-year revenue growth would beat industry levels for FY19 and show steady growth, as the mid-sized IT company attempted to stem a more than 10% decline in its shares following a tepid business outlook for the fourth quarter.
On Tuesday, the company had said its fourth-quarter revenue would be hit and margins would fall due to an $8 million sequential drop in revenue from its intellectual property business.
“The Company is expecting a decline in IP revenues during Q4 FY18 (current quarter). This will impact revenue and EBIDTA margin for the quarter. IP revenues have seasonality and tend to fluctuate on a sequential quarter-on-quarter basis. While we continue to see good overall growth for our IP revenue portfolio, relative quarter-on-quarter decline follows a strong Q3 FY18,” Persistent had told the BSE in a filing.
Persistent’s shares closed down nearly 12% in Wednesday trade on the BSE. The company attempted to calm investors with a clarification to its outlook.
“We wish to clarify that in terms of the outlook for FY 2018-19, we expect a steady growth in both revenue streams – service revenues and IP revenues. As mentioned, we expect the overall revenue growth to be better than NASSCOM guidance for the industry. IP revenues by nature will have quarter-on-quarter volatility,” the company said on Wednesday.
The National Association of Software and Services Companies expects the industry to grow between 7 and 9% in constant currency in FY19.
Brokerage Edelweiss Securities noted that while a drop in IP revenue was expected on account of seasonal weakness in IBM’s Alliance business, the $8 million miss is much higher than anticipated due to revenue ramp down in one of its IP products.
“The unanticipated drop in IP revenue is negative considering good growth clocked by other mid-cap peers. However, we remain enthused by Persistent’s strong enterprise digital offerings,” said Edelweiss Securities.
