Buy Persistent Systems; target of Rs 820:Sharekhan

Sharekhan research report on Persistent SystemsPersistent Systems Ltd (PSL) has delivered an in-line performance for Q2FY2016, with a revenue growth of 5.5% QoQ to $82.9 million, led by an 8.4% Q-o-Q growth in IT services (2.8% attributed to the recent acquisition of RGen Solutions, Microsoft ecosystems), while IP-led revenue was down by 7.5% QoQ to $13.4 million. Its EBITDA margin was down by 60BPS QoQ to 18.7%, attributed to wage hikes during the quarter. The net income for the quarter was up by 6.9% QoQ to Rs71.8 crore, partly led by lower effective tax rate of 25.5% vs. 28.5% in Q1FY2016. On the operating metric front, the enterprise revenue grew by 14% QoQ (2.8% from RGen Solutions), while ISV revenue was up by 5.9% QoQ. Its revenue from top client grew by 2.6% QoQ; added two clients in more than $3 million client bucket (added 91 clients during the quarter). The telecom vertical was down by 6.6% QoQ, on the top of 10.2% decline in Q1FY2016, while financial services delivered a strong growth of 12.5% QoQ. Attrition inched up to 17.1% (highest in last 12 quarters), added 91 headcounts during the quarter taking the total to 8,545.Looking at the strong growth in enterprise revenue, which has delivered a 9% CQGR in the last six quarters, we believe PSL’s enterprise digital transformation strategy is shaping up well. Further, led by the recent acquisitions of Aepona Holdings and pick-up in IP-led revenue in Q4FY2016, we expect the revenue momentum to accelerate in FY2017 and also the company is likely to see gradual improvement in margins with tapering off of SG&A investments and Aepona Holdings’ integration. We have broadly maintained our estimates for FY2016 and FY2017. We continue to see PSL as a good investment bet for the next four quarters. We maintain our Buy rating on the stock with a price target of Rs820.

For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More