Persistent Systems reported a 6.8% quarter-on-quarter decline in net profit to ₹439.4 crore for the December quarter. The company attributed this sequential profit decrease to the new labour codes and a one-time impact on EBIT. Profits were adversely affected by additional provisions for gratuity and leave encashment as mandated by the new labour codes, which impacted profits by 250 basis points. Additionally, a wage hike offered in October contributed an impact of 180 basis points, while furloughs during the quarter added further pressure, contributing an additional 20 basis points.
Regulatory Squeeze
Persistent’s revenue rose by 5% sequentially to ₹3,778.21 crore for the quarter. However, EBIT margins fell to 14.4% from 16.7% in the previous quarter. EBIT decreased by 7% q-o-q to ₹542.7 crore.
Positive factors for the company included currency fluctuations (30 basis points), lower subcontracting costs (20 basis points), and improved on-site utilisation along with reduced sales and administration costs (40 basis points), according to Vinit Teredesai, Executive Director and CFO of Persistent Systems. Additionally, a combination of pricing for tools and personnel contributed 150 basis points to profits, he said at the company’s investor call.
BFSI and North America
Sandeep Kalra, CEO and Executive Director of Persistent, stated that revenue increased by 4% quarter-on-quarter and 17.3% year-on-year, achieving an EBIT margin of 16.7% when excluding the one-time impact from the new labour code. The business in the December quarter was primarily driven by a 29.3% growth in the Banking, Financial Services, and Insurance (BFSI) segment. Year-on-year growth was reported in North America, which increased by 18.6%, in Europe by 22%, and in the Rest of the World by 37.9%. However, the Indian business saw a decline of 2.5%.
The company also increased its workforce by 487 during the quarter, raising the total to 26,711 employees. Attrition rates decreased from 13.8% to 13.5% in the previous quarter. Persistent Systems declared an interim dividend of ₹22 per share.