We see a good pipeline for acquisitions in IP: Anand Deshpande

Interview with CMD, Persistent Systems

Persistent Systems, in the software product and technology services segments, beat Street estimates with net profits for the March quarter up 11.9 per cent over a year before to Rs 76 crore. However, it missed the revenue expectation for FY15.

Anand Deshpande, chairman and managing director, talks to Shivani Shinde Nadhe about these and related matters. Edited excerpts:

After disappointing numbers from the big three, Persistent’s PAT (profit after tax) numbers come as a surprise, though top line performance does lag.

It has been a flat quarter. We have stated in the past that in general, many of our customers are going through their own challenges and product rationalisation. On an ongoing basis, we are seeing projects wherein on short notice, resources are being moved from one to another part or because of some changes, some cuts have been made on projects.

The good news is if such cuts happened in the past, it meant no ramp-up in deals. We see a lot of action in the market. We closed 51 accounts this quarter, there is a lot of activity on new technologies like digitisation, cloud, etc.

You have been saying this for a few quarters. Do you see it becoming a trend?

This seems to look so. The nature of deals and priority are also changing on a daily basis. The good thing is that deals are getting closed, every day. There is a lot of volatility. So, if I close one part of a project, I see another being signed in a different segment. Cloud is happening in a big way. The annuity business with customers continues; I have $80 million of existing business. The problem is, it’s getting harder to predict. Annuity on projects is difficult.

The dips you see on a quarter-on-quarter basis (both project closures and new projects signings) is in the range of 10-12 per cent. That means 10-12 per cent of deals going up or down. Volatility and activity on accounts is extremely high and that is what is causing this pressure.

How has your intellectual property (IP) business fared in the year?

It’s grown about 18 per cent year-on-year. However, as a percentage of the total, it has gone down marginally. Big growth in this segment will come through the inorganic route.

We have not done any acquisitions on IP this year. That implies it has not gone up. This business will not grow phenomenally. We do see a good pipeline for acquisitions. In the next three to six months, we should pick up some more IPs in the portfolio.

Most of the IP revenue we have generated has been acquired from customers' end-of-life products, which we acquired. They are non-strategic from customers' standpoint. But we have built a strategy that allows us to take these products, get them in shape and deliver good revenues for both our customers and us. We are going ahead and finding such products in the market.
 
Do you think Persistent will manage to grow better than the Nasscom (sectoral body, for the sector) estimate?

I do not want to comment on that. I think we will do better than this year. We grew by 13 per cent this year.   

How do you manage this volatility?

We have invested in our sales and marketing. If you are losing something, we have to ensure we gain much more than that. So, our utilisation numbers have gone up to 73.2 per cent for this quarter (it was 67.7 per cent in the fourth quarter of FY14 and 72.9 per cent in the third quarter of FY15). Our DSO (days sales outstanding, a measure of the average number of days a company takes to collect revenue after a sale has been made) has gone up to 64. Our doubtful debt provision is almost half of what it was in the past financial year. Our collections have been good.