Reduce Persistent Systems; target of Rs 7850: Emkay Global Financial

Emkay Global Financial's research report on Persistent Systems

We recently interacted with the management of PSYS, to comprehend the demand environment & business outlook. KTAs: Under the leadership of CEO Sandeep Kalra, PSYS has strengthened its sales focus, changed incentive models to identify large deals & inculcate long-range thinking, enhanced client mining efforts, expanded partnerships across major tech players, and bolstered capabilities in hyperscaler clouds, integration, salesforce and digital payments via strategic tuck-in acquisitions – this has helped PSYS deliver top-quartile growth. Despite a challenging demand scenario, PSYS is well-poised to sustain industry-leading growth momentum, on the back of strong execution, proactive deal pursuits, and ability to identify new growth avenues like PE channel (~60- 65% of the pursuits are proactive), presence in high-growth areas, and limited exposure to legacy business. But the stock has seen a stellar run-up of over 26%/74%/361% in the last 3M/1Y/3Y, resp., and trades at ~45x/36x on FY25E/FY26E EPS (broadly similar to BBG consensus) which we find expensive.

Outlook

Current valuation requires flawless execution and sustained industry growth tailwinds, and leaves little room for error. We find the risk-reward unfavorable at the CMP and await a better entry point to turn constructive on the stock. We roll forward to Mar-26E; retain REDUCE with TP of Rs7,850 at 34x Mar-26E EPS.