KR Choksey's research report on Persistent Systems
Persistent Systems Limited (PSYS) Q4FY22 performance was marginally higher than our estimate. Dollar Revenue was up 9.1% QoQ to USD 217Mn (KRChoksey est. USD 215Mn). Rupee revenue grew by 9.8% QoQ to INR 16,379Mn (KRChoksey est. INR 16,167Mn). Reported operating margin remained flattish at 14%, fueled by lower travel/sub-con cost and forex (+30bps) which was partially offset by overall inflationary environment, higher CSR and one time cost of acquisitions. Reported Net profit grew by 14.6% QoQ to INR 2,010Mn (KRChoksey est. INR 1,824Mn) with margin of 12.3%, up 51bps QoQ. PSYS has nearly doubled its profit, 2.5x its OCF and 75% increase in headcount over the past two years (FY20-22). Material rise in profits over FY22-24E, with revenue to comfortably cross the USD 1bn threshold level in FY23E, large client mining (USD 5mn+ >40% higher over the past year) translating into a larger participation (complimented by larger deals and supported by recent acquisition). Our target price of INR 4,928 is based on 34x Mar-24E EPS with EPS CAGR of 26.7% over FY22-24E.
Persistent is currently trading at a valuation with a P/E multiple of 37.3x/30.1x on FY23E/FY24E earnings. We expect strong deal momentum across verticals, higher focused on digital business, aspiration to attain USD 1bn run-rate over the next 6-8 quarters will aid growth over the medium to long term in future and hence we upgrade our target price to INR 4,928 (Earlier Target Price INR 4,576/share), with an upside of ~14% over the current market price along with our view to an “ACCUMULATE” rating to the stock with a P/E multiple of 34x to the FY24 estimated EPS of ~INR 145.
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