Persistent reported robust revenue growth of 6.7%QoQ to USD43.2mn. This was driven by 3.7% QoQ volume growth and 3.1%QoQ growth in realization. EPS stood at Rs9.1

In line revenue growth, positive surprise at bottom-line – Revenues grew 4.2%QoQ to Rs1,949mn in line with PINCe of Rs 1,941mn. EBIDTA dipped 107bpsQoQ due to absence of one time benefit on salary expense (which was there last quarter) and increase in travel expense (higher visa cost). PAT grew 1.2%QoQ to Rs343mn led by higher forex gains.

Robust growth across selective verticals and geographies – APAC surged 16.7%QoQ on the back of huge untapped markets and expansion of sales efforts. US grew 6.5%QoQ in line with peers. Telecom vertical surged 22.6%QoQ led by increased spending on developing and maintaining applications in mobility. Healthcare and life sciences also grew 16.7%QoQ.

New service lines witness more traction; strong addition of clients – New service lines like enterprise mobility and cloud computing grew 40%QoQ and 8%QoQ due to strong demand environment. These new service lines like enterprise mobility, cloud, analytics and collaboration contribute 40% of revenues. 36 new clients were added in this quarter, clients in USD1-3mn range grew 38%QoQ. Non-top 10 clients grew 6.6%QoQ.

Outlook – strong gross addition; robust demand for new service lines; stable margins for FY12 ; higher tax rates to hurt bottom-line– The management plans to give 900 campus offers for FY12 in anticipation of improved demand environment. New service lines like enterprise, cloud computing, analytics and mobility are expected to contribute 45% of revenues towards the end of FY12. Persistent Systems has the strongest EBIDTA margins among peers and this is expected to remain flat in FY12. Tax rates are expected to increase to 30% which will lead to a dip in PAT by 5.5%YoY. This negative impact will normalise in FY13.

We have introduced FY13E financials. The stock currently trades at 9.3x and 9.8x FY11E and FY12E. We maintain ‘BUY’ with a target price of Rs470 based on 14x FY12E earnings.