Generative AI to show reasonable revenue impact: Persistent Systems CEO

Despite microeconomic challenges, the company is comfortable with the growth, Sandeep Kalra, CEO and Executive Director, of Persistent Systems said in an interview

IT services firm Persistent Systems reported a soft quarter with a net profit of Rs  228.7 crore, growing 8.1 per cent year-on-year (YoY) and a sequential fall of 9 per cent.

Despite microeconomic challenges, the company is comfortable with the growth, Sandeep Kalra, chief executive officer (CEO) and executive director, Persistent Systems, said in an interview with Sourabh Lele. Edited excerpts:

How would you summarize the Q1FY24 results?

We delivered 3 per cent revenue growth on a sequential basis in dollar terms and 17.1 per cent on a YoY basis.

In rupee terms, it's 3 per cent quarter-on-quarter (QoQ) and 23.6 per cent on a YoY basis. Even if you were to look at a relative basis to other peers of ours in the industry, this is among the highest growth that anybody has delivered. 

We are fairly comfortable with the growth that we have delivered. The order wins were a tad lower than the last quarter, but YoY they have increased. Certain deals, however, have slipped a bit. They have either closed or are closing in this quarter. In this macroeconomic environment, I think we're executing our orders well. 

When you speak about macroeconomic challenges are you facing issues with any particular vertical?

Healthcare life sciences saw a marginal dip in this quarter. That has more to do with a few customers who are in the instrumentation space whose revenues have come down from the peak of the pandemic. Now they are readjusting their spending, which also impacts us a little bit. But from the deal wins, I can say healthcare life sciences will be a good play for us in the times to come. 

Banking financial services are a little slow. Although for the last quarter, we delivered fairly healthy growth there as well. So the biggest strength is technology clients, second healthcare life sciences, BFSI has done a little bit wobbly. For some deals, yes, there is some amount of delay in ramp up and even there's some amount of ramp-down happening in some deals.

The EBIT margins have dipped 50 basis points sequentially. What is your reading on margin improvement?

At the EBIT level, there were three or four things that played out. There was revenue growth which contributed positively. On the negative side, there was a 40 basis points visa impact, which is a seasonal thing. You can look at our results for the last several years in the same quarter, there is a clear impact of visas. 

We are also looking at more amortization specific to certain deals. There is a certain amount of conservativeness that we play with in terms of allocating money towards potential bad debts. So there is a 10 basis point impact of that.

By when do you see your bets on generative AI reflected in revenues?

We are adopting this technology to see how we can bring developer productivity up, take it to our customers using all these AI coding assistants to give better productivity for their engineering efforts.

We are also using it to accelerate our customers’ product development.

At this point, it is more about proof of concepts. Hopefully over the next three-four quarters, this will start becoming a bigger revenue driver. Over the next several years this will become a growth engine for us.

During the AGM, there was an announcement made by the company on shifting to the next orbit. What change will this bring?

Our aspiration is to go from $1 billion to $2 billion, which will be our next orbit. We need to change something to be able to go further, for instance, our aspiration in terms of the geographic spread of our revenue.

When we reach $2 billion, roughly about 12 to 15 per cent should come from Europe, which is currently less than 10per cent. We are investing big time in bringing technology progress to our customers. 

We are looking at some target acquisitions. In areas where we want to go deeper, whether it is service lines in terms of our geographic spread, or in terms of the industry verticals. So, there are different tenants to it, which form the genesis of what is the foundation for our next target.