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Buy Persistent Systems; target of Rs 3700: Emkay Global Financial

Emkay Global Financial is bullish on Persistent Systems has recommended buy rating on the stock with a target price of Rs 3700 in its research report dated September 30, 2021.

October 01, 2021 / 01:21 PM IST
HDFC Securities research report's outlook and valuations:  500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar."" title="HDFC Securities research report's outlook and valuations:  "The YTD EPS upgrades (consensus) have been led by mid-tiers such as Tata Elxis, Mindtree, Mastek, and Persistent Systems, ranging from 20-40 percent and, within tier 1, by Wipro (~15%). We expect the sector (coverage universe) to post 13 percent and 14.5 percent USD revenue/APAT CAGR over FY21-24E compared to 6.5/7.5 percent over the past five years. The mid-tier valuation premium relative to tier 1s may sustain, based on its relative outperformance (>500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar."" width="100%" height="auto" >

HDFC Securities research report's outlook and valuations:  "The YTD EPS upgrades (consensus) have been led by mid-tiers such as Tata Elxis, Mindtree, Mastek, and Persistent Systems, ranging from 20-40 percent and, within tier 1, by Wipro (~15%). We expect the sector (coverage universe) to post 13 percent and 14.5 percent USD revenue/APAT CAGR over FY21-24E compared to 6.5/7.5 percent over the past five years. The mid-tier valuation premium relative to tier 1s may sustain, based on its relative outperformance (>500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar."

 
 
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Emkay Global Financial's report on Persistent Systems


Persistent Systems has entered into an agreement to acquire Software Corporation International (SCI) and its affiliate Fusion360 LLC for a cash consideration of USD53mn (~3.1x EV/S on CY20 basis). It has also signed an agreement to buy certain assets from Shree Partners LLC USA and business from its Indian subsidiary Shree Infosoft Pvt. Ltd. for a cash consideration of USD6.87mn (~0.9x EV/S on FY21 basis). Deal rationale: SCI brings domain consulting capabilities and specializes in payments solutions, integration and support services for leading US banks. SCI enhances PSYS's capabilities and serves as the foundation of a dedicated payments business unit. SCI expands PSYS's BFSI client footprint with ~10 marquee customers from top banks in North America and over 90 employees in the region. PSYS has announced a dedicated payment business unit, which will be headed by D. Keith Sides, President and CEO of SCI. The Shree acquisition expands PSYS's BFSI capabilities in the cloud, data and infrastructure domains. It also enables PSYS to deliver critical services to a strategic client, which is a leader in the global claims management industry. Shree adds over 200 employees, largely in NCR, India, and clients across US and Europe in BFSI and Travel & Hospitality. Additionally, SCI expands PSYS's presence in Charlotte, a key hub for the US BFSI industry. Shree Infosoft adds a new delivery location in NCR.



Outlook


Given the size of the deals (~4% revenue accretion/low-single digit EPS dilution due to amortization charges and lower other income in Year-1), we do not expect any meaningful revision to our earnings estimates. We have a Buy rating on the stock with a TP of Rs3,700 at 33x Sep'23E EPS.


For all recommendations report, click here


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first published: Oct 1, 2021 01:21 pm

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