Motilal Oswal 's research report on Persistent Systems
Persistent reported sequential revenue growth of 3.9% (USD) and an EBIT margin of 12.1% (~170bp expansion), ahead of estimates. Growth was driven by the Services business, partly offset by the IP portfolio due to seasonality in the Reseller business. Broad-based performance was encouraging. Healthy growth in Services despite a high base indicated steady progress on the turnaround. Management commentary further implied a healthy deal pipeline in the Services business. We expect this vertical to continue to deliver even with Mr Sandeep Kalra’s confirmation as CEO. The company has guided for margins to remain around current levels despite upcoming wage hikes in 3Q. We see the company’s capability to defend margins as a positive. The recent improvement in execution and a higher focus on annuity revenue should offset any volatility in the IP segment, in our opinion. Our EPS estimates over FY20–22E remain largely unchanged. We reiterate Persistent as our top Buy across our small-cap IT coverage.
The stock is currently trading at 18x FY22E EPS. Our target price is based on 21x FY22E EPS.
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