Persistent Systems shares rallied 5 percent intraday on January 29 as brokerages expect the stock to return 10-42 percent after third-quarter earnings and buyback announcement.
The stock was quoting at Rs 577.95, up Rs 13.30, or 2.36 percent on the BSE at 1500 hours IST.
Citibank has upgraded the stock to neutral and raised price target to Rs 620 from Rs 605 earlier as it believes buyback announcement and new CEO should work in its favour over the next few months.
The research house raised its earnings estimates marginally by over 0-4 percent, which has not factored in buyback yet.
Another global brokerage house, CLSA, has a buy call on the stock, though it slashed price target to Rs 700 from Rs 780 earlier as it cut FY20-21 revenue estimates by 4-7 percent and margin by 40 bps.
While retaining a buy call on Persistent Systems with a price target at Rs 800 (implying 42 percent potential upside), Motilal Oswal said Persistent's revenue growth recovery remains work in progress.
"The quarter's beat and the outlook on profitability drive a 140bp uptick in EBITDA margin estimate to 18 percent for both FY20/21. This, in combination with the impact from buyback, drives 16/11 percent upgrade in EPS estimate for FY20/21," Motilal Oswal said.
The research house further said owing to sub-par execution in revenues, company's valuation multiple has corrected significantly relative to peers, and was trading at around 12x FY20E on earlier estimates. "While this may not recover until there is visible/sustainable revenue traction, execution on margins should drive valuations higher."
The IT company's Q3 profit grew 4.1 percent QoQ to Rs 91.7 crore and revenue increased 2.2 percent QoQ to $120.8 million in Q3FY19.
Its services revenue rose 3.1 percent QoQ to $90.64 million while IP-led revenue was flat QoQ at $30.2 million despite strong Q3 seasonality.
EBITDA (earnings before interest, tax, depreciation and amortisation) grew 18.5 percent QoQ to Rs 170 crore and margin expanded 250bp QoQ to 19.7 percent, led by higher utilisation, better realisation, more offshoring, etc.
Persistent is confident that it will be able to continually drive up pricing in high-skilled areas, given robust demand for talent.
The company announced buyback of shares worth Rs 225 crore at a ceiling price of Rs 750/share through the open market route (this is around 5.2 percent of market cap). The amount is less than 10 percent of net worth, and thus, would not require the approval of shareholders.
The company also announced an interim dividend of Rs 8 per share.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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