Buy Persistent Systems; target of Rs 820:Edelweiss

Edelweiss's research report on Persistent SystemsPersistent Systems’ (Persistent) Q3FY16 revenue at USD89.7mn (up 8.1% QoQ) was ahead of Street’s 5.8% estimate. Organic revenue grew 4.4% QoQ, while inorganic contributed the rest. EBITDA margins, at 18.8%, was in line with estimates. The company’s enterprise and IP‐led businesses grew 16.2% and 34.1% QoQ, respectively, while ISV declined 3.1% QoQ. We believe Persistent has witnessed severe pain due to high exposure (>50%) to ISV’s, which have been suffering due to cloud based disruption. However, the company has simultaneously also significantly increased its exposure to enterprise business (now 28.6%). While its overall growth will still be in low to mid teens due to high ISV exposure, we believe in next few quarters rising contribution from enterprise will lead to higher growth. We continue to prefer Persistent for its niche offerings and capability led growth model. Maintain ‘BUY’ with revised TP of INR820.We remain confident that Persistent will achieve our 14.7% USD revenue and 17.4% EPS CAGR over FY16‐18E. The stock trades at 13.0x FY17E EPS. We maintain ‘BUY/SP’ with a revised target price of INR820 as we roll‐over to FY18 (16x FY18E EPS; INR740 earlier).

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