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Buy Persistent Systems; target of Rs 4,730: Sharekhan

Sharekhan is bullish on Persistent Systems has recommended buy on the stock with a revised price target (PT) of Rs. 4,730 in its research report dated October 27, 2021.

October 28, 2021 / 11:15 AM IST

Persistent Systems Limited (PSL) delivered another quarter of excellent all-round performance, with significantly beating our estimates on revenues and EBIT margins. USD revenue grew by 9.3% q-o-q (up 34% y-o-y) to $182.3 million, led by industry-leading 10.1% q-o-q (up 39.9% y-o-y) growth in IT services. Q2FY2022 was impressive in terms of healthy deal TCVs, robust net headcount additions, new client additions and strong client mining. New business deal ACVs grew by 16% q-o-q to $108.8 million. EBITDA margin improved 22 bps q-o-q to 16.6% despite wage revision, aided by strong revenue growth. The management guided to achieve its goal of a $1 billion revenue run-rate in the next 6-8 quarters, implying a CQGR of 4.6-6.5%. Further, the company expects a sustainable margin performance in near-term given strong revenue growth, while margins likely to improve by ~100 bps in the medium-term given restructuring of IP contracts, fall in sub-contractor expenses, better operating leverage and a flattening pyramid.


We believe Persistent Systems is wellpositioned to deliver another year of market-leading growth in FY2022, given its strong capabilities in the product engineering space, healthy relationships with large enterprises, strong execution and broad-based demand across its verticals. Further, the management expects demand to remain strong over next 2-3 years. At CMP, the stock trades at a valuation of 35x/29x its FY2023E/FY2024E earnings, justifying the strong revenue growth potential with improvement in margins, consistent in deal wins and improving return ratios. We expect USD revenue/earnings to clock a CAGR of 20%/26% over FY2022-FY2024E. Given superior revenue growth, strong balance sheet and M&A opportunities, we retain a Buy on the stock with a revised price target (PT) of Rs. 4,730.

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first published: Oct 28, 2021 11:15 am
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