Emkay Global Financial's research report on Persistent Systems
Persistent reported mixed performance in Q4 — revenue grew 3.4% QoQ CC, in line with our estimate, while margin of 14.5% (flat QoQ) missed it. Revenue growth still lopsided with HLS contributing ~94% of incremental revenue sequentially. Top client growth was impacted by a planned ramp down for the second consecutive quarter, while other large client growth was healthy. Deal wins TCV was USD447.7mn (1.4x book-to-bill), showing moderation with Q4 and TTM TCV up 6% and 12.6% YoY, respectively. Amid the challenging macros, the management aims for top-quartile growth in FY25E, while maintaining EBITM at FY24 levels. Company reiterated their medium-term target of improving EBITM by 200-300bps over the next 3 years.
Outlook
However, progress has been slow and target is shifted by a year; which is disappointing. Moderation in deal intake, Q4 performance, and slow progress on margin trajectory led to EPS cut of 5-6% for FY25-26E. Valuation remains rich even after today’s ~10% price correction. We retain REDUCE with a TP of Rs3,700/sh at 34x Mar-25E EPS.
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