ICICI Direct recommended hold rating on Persistent Systems with a target price of Rs 650 in its research report dated April 30, 2019.
ICICI Direct's research report on Persistent Systems
Decline in IP led revenues (down 15.4% QoQ) impacted overall revenues in Q4FY19. Weak IP seasonality and higher admin & other expenses (led by provision of ~Rs 18 crore for IL&FS) led to a sharp drag of 450 bps QoQ in EBITDA margins to 15.2%. On adjusting for one offs, EBITDA margins were at 17.4% in Q4FY19. In FY19, apart from 20.9% YoY decline in IP led business, the company’s Services business remained soft across the year to result in 3% YoY growth. This resulted in mere 2.2% YoY dollar revenue growth in FY19. While growth in digital (9.0% YoY) was lower compared to industry peers, the management expects a rebound to industry level growth (~30% YoY growth) in the coming quarters.
Hence, we maintain our HOLD stance with a revised target price of Rs 650/share (~12x FY21E EPS). We believe that the key thing to watch is new CEO’s strategy to drive growth, hiring of new sales person and improvement in growth at top client. We will be keenly watching these events, which could trigger re-rating in the stock.
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