Prabhudas Lilladher's research report on Persistent System
Persistent delivered consistently strong (9%+ QoQ) revenue growth since past four quarters. We believe it will continue to deliver industry leading growth and model 33.5% YoY USD growth in FY23E given – 1) strong TTM ACV of $943.1mn with book-to-bill at 1.23x, 2) incremental revenue contribution (~11%) from acquisitions, 3) opportunity to capture higher share of fast growing cloud services market led by strengthened hyperscalar partnerships due to Data Glove and Media Agility acquisitions and expansion of Payments BU (SCI acquisition). Flattish QoQ EBIT margins in Q4, dip in LTM attrition (-30bps QoQ) and aspiration to maintain EBIT margins at FY22 levels (~14%) is impressive. We believe margins can be maintained (13.8% in FY23E) aided by tailwinds from revenue growth leverage, pyramid optimization, improvement in margin profile of one of the IP deal, improved pricing and currency depreciation.
Our EPS estimates remain largely unchanged. We arrive at DCF based target price of Rs. 4915 (earlier Rs. 5160) with implied target multiple of 38x (earlier: 40x) factoring increase in risk free rate to 7.2% (earlier 6.8%). Persistent is currently trading at 37x/33x earnings multiple on FY23/24 EPS of INR 116/131 respectively with Revenue/EPS CAGR of 24%/23% over FY22-24. Maintain Buy.
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