Non-banking financial companies (NBFCs) bore the brunt of the Infrastructure Leasing & Financial Services (IL&FS) default crisis, but there was collateral damage as well.
Pune-based Persistent System emerged as the latest victim thanks to its exposure to IL&FS. On October 22, when the company announced its September quarter results, the company disclosed that it had deposits worth 43 crore with IL&FS, which would mature at various dates from January 2019 to June 2019. And it didn’t help that the company's results disappointed investors.
Its consolidated revenue barely saw an increase (0.2% growth q-o-q) at 8,356 million led by 10% q-o-q decline in IP revenue. The biggest disappointment was the tepid 1.1% growth of its digital segment. However, rupee depreciation offset the wage hike impact helping Ebitda margin improve 40 basis points q-o-q to 17.2%. Consolidated net profit also remained flat at 880 million (1% growth q-o-q) in September quarter. As a result, the stock hit a 52-week low of 540 before closing 16% lower at 564. That said, as of September’18 end, there have been no defaults in payment of interest and the management believes that there is no immediate need to recognise any impairment.
Even as the stock came under some selling pressure, the promoter Anand Deshpande bought 18,000 shares worth 10 million on October 24, which helped arrest the free fall. Prior to the stake sale increase in October, promoters cashed in on the stock gaining nearly 18% between April and June. Mukund Deshpande disposed of shares worth 24 million between June 15, 2018, and June 22, 2018.
Earlier, he had offloaded shares worth 7 million between May and June 2017. Promotor-backed entity Rama Purushottam Foundation also sold stock worth 2 billion in FY18. On the back of the multiple stake sales, the promoters’ holding has gone down from 35.02% in March 2017 to 30.43% as of September 2018.
Despite promoters reducing their overall holding and the disappointing Q2FY19 numbers, analysts remain bullish on the stock. While Kotak Securities has reduced the EPS estimate to 47.7 as against 52.2 earlier for FY19, it states that margin improvement and decent revenue visibility makes them positive on the company’s growth prospects. “An attractive valuation, cash-rich balance sheet, strong free cash flow and healthy return ratios (RoE 16+% and RoCE 18+%) also provide high comfort,” notes the report.
Not only analysts, but foreign portfolio investors (FPIs) are also bullish on the firm’s future prospects. Over the past four quarters, the FPIs have increased their stake from 22.86% to 26.49%. Government Pension Fund Global, SAIF India IV FII Holdings and Morgan Stanley India Investment Fund are the three biggest FPIs in the stock with holdings of 2.91%, 1.62% and 1.33% respectively.
Mutual funds also increased their overall holding in the company. During the same period, mutual funds have increased their stake from 12.05% to 14.32%. HDFC Mutual Funds has doubled its stake from 2.25% to 4.15% over the last four quarters. L&T Mutual Funds and Tata Mutual Fund, too, have increased their stake from 0.006% and 0.38% to 3.17% and 1.46% respectively.