Reduce Persistent Systems; target of Rs 5300: Emkay Global Financial

Emkay Global Financial's research report on Persistent Systems

Q3FY25 operating performance was a tad better than our estimate. Revenue growth of 4.6% QoQ CC was in-line, while EBITM of 14.9% was slightly ahead of our estimate. Unlike in previous few quarters, growth was broad-based across verticals/geographies. Deal-win TCV of USD594.1mn (book-to-bill: ~1.6x) was steady. The mgmt remains confident about growth momentum, but moderating growth in TTM TCV/ACV (12.8%/10.9% vs 20% revenue growth) raises some concerns. The mgmt reaffirmed its aspiration of USD2bn revenue run-rate by FY27-end, with 200-300bps margin expansion; it also outlined a roadmap of USD5bn revenue run-rate by FY31-end. While there is some mood uplift in select areas, the mgmt stays focused on execution, irrespective of the external environment.

Outlook

We up FY25-27E EPS by 0-3%, accounting for the Q3 performance. Given the price correction of 11% in 1M, we upgrade our rating to REDUCE, with TP of Rs5,300 at 40x Dec-26E earnings. Valuations remain rich; we await a better entry price to become more constructive on the stock.

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