Persistent Systems stock zooms 10% as Street cheers Q2 net profit, revenue growth; brokerages bullish

Persistent Systems stock has zoomed 95 percent in the past year, nearly doubling investors' capital. In comparison, Nifty rose 28 percent during this period.

Shares of Persistent Systems jumped as much as 10 percent on October 23 after the mid-tier IT services company reported impressive earnings for the quarter ending September 2024. The strong financial performance has caught the attention of several brokerages, leading to optimistic forecasts and buy recommendations.

Prabhudas Lilladher noted that Persistent Systems' unique value proposition and focus on regulated sectors have enabled it to remain resilient in a challenging market environment. Investments in building a senior leadership team in key verticals have also boosted client engagement and facilitated the closure of significant strategic deals.

However, the brokerage considers the current valuation high, reflecting all positive factors in the stock price. They estimate a compound annual growth rate (CAGR) of 18 percent in USD revenues and 22 percent in earnings from FY24 to FY27, assigning a price-to-earnings ratio of 43x for FY27, with a target price of Rs 5,810 and an “Accumulate” rating.

Persistent Systems on Tuesday reported a 23.4 percent on-year (YoY) increase in net profit at Rs 325 crore for Q2FY25. The IT firm’s revenue from operations surged 20.1 percent to Rs 2,897 crore against Rs 2,412 crore in the year-ago period.

Nuvama remains positive about Persistent Systems, expecting it to outperform peers due to its strong positioning in digital transformation and its substantial margin levers. They believe the company is well-placed at its current revenue range of approximately $1 billion and that the trajectory for margin expansion is on track.

Although the stock is trading at a premium price-to-earnings ratio of 45x for FY26, this valuation is justified by the company’s strong growth profile, which includes a projected 26 percent earnings CAGR from FY24 to FY27, said Nuvama as it retained a 'buy rating on the stock with a target price of Rs 6,350 per share.

Persistent's earnings before interest, taxes, depreciation, and amortization (EBITDA) rose to Rs 384 crore, and the EBIT margin came in at 14 percent in the September quarter.

Nomura has issued a 'neutral' call on the counter, setting a target price of Rs 5,200 per share. The brokerage highlighted the company's resilient growth driven by strong execution and healthy deal wins, with revenue growth surpassing expectations for Q2.

They anticipate margin improvement in the second half of FY25, aiming for a long-term increase of 200-300 basis points. Persistent Systems is currently trading at a price-to-earnings ratio of 35.7x based on FY27 earnings projections.

Motilal Oswal highlighted Persistent Systems’ impressive year-over-year growth of 20.1 prcent despite a slowdown in key sectors. The growth in both the healthcare and BFSI (banking, financial services, and insurance) verticals demonstrates the company's competitive edge in high-growth markets.

The company is positioning itself as a platform-driven business utilizing AI solutions to adapt to shifting market demands.

While acknowledging the stock’s high valuation, analysts at MOFSL believe the exceptional earnings growth trajectory indicates further upside potential. They value Persistent Systems at 50x its projected earnings for September 2026, reiterating a 'buy' rating with a target price of Rs 6,300.

At 10:12 am, Persistent Systems shares were trading 10 percent higher at Rs 5,674 on the National Stock Exchange (NSE). The stock has risen around 54 percent so far this year, outperforming Nifty's returns of 12 percent.

In the past 12 months, the counter has zoomed 95 percent, nearly doubling investors' capital. In comparison, Nifty rose 28 percent during this period.