Buy Persistent Systems; target of Rs 5230: HDFC Securities

HDFC Securities' research report on Persistent Systems

Persistent Systems (PSYS) posted an in-line revenue and a slightly better operating performance. Key positives include (1) deal bookings, which were at an all-time high—both renewals and net-new TCV, which provides adequate growth visibility (9MFY23 net-new ACV ~55% of revenue-rate) and positive commentary on Q4 order bookings; (2) focus on larger deals with annuity and progress in client mining, reflected in USD 5mn+ client count increasing from 30 in Q2 to 34 in Q3 and continued increase in revenue per account (up 50% since pre-covid); and (3) recovery expected in T2 accounts, which has been a growth headwind in recent quarters (T50 accounts ex-T2 grew ~8% QoQ). PSYS attaining its margin aspiration of 200-300bps increase in 2-3 years is an upside risk to our estimates.

Outlook

Maintain BUY on PSYS (top pick in mid-tier IT) with a TP of INR 5,230, valued at 32x Sep-24E EPS. Valuation drivers (currently at 28.5x FY24E) include industry-leading 25% EPS CAGR over FY22-25E, ~50% RoIC and improving FCF and payout.

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