Buy Persistent Systems; target of Rs 800: Axis Securities

Axis Securities's research report on Persistent SystemsManagement highlighted traditional models continue to be under pressure and Persistent will leverage on the IBM deal to become a strategic partner with clients on their digital transformation. IP segment (28% of rev.) will be driven by strong momentum provided by the IBM deal (FY17: ~USD 50 mn).Client interactions suggest traction in ISV segment (46%) and Enterprise segment (26%) will be healthy and Enterprise segment is likely to recover in coming quarters. We believeFinancial Services and Healthcare continue to be key growth verticals in enterprise digital transformation. We expect USD revenue CAGR of 21%over FY16-18, driven by momentum in IBM deal and Enterprise Digital Transformation. While headwinds exist in the form of investments in the IBM deal, we believe Persistent has margin levers to cushion the impact. Our EBITDA margin stands at 17%/18% for FY17/FY18. Our TP stands atRs 800 (15x FY18E EPS). Given 11% upside from CMP of Rs 718,we have a BUYrating on the stock. The stock trades at 17x/13x FY17E/FY18E EPS.

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