Buy Persistent Systems; target of Rs 1403: Cholamandalam securities

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Cholamandalam securities' research report on Persistent Systems

In 2QFY21, Persistent reported revenue growth of 8.4% YoY (3.9% QoQ) to US$136mn. The growth was driven by Technology Services business unit (77% of revenue) which registered a growth of 16.6%YoY (up 4.2% QoQ). From the business offerings mix, the growth was driven by Services (83.8% of revenue) which increased by 17.2% YoY (up 5.4% QoQ). From margin standpoint the company improved its gross margins to 34.7% (vs 33% in 1QFY21) owing to higher linear revenue, improved utilization and higher royalty income. In addition, the SG&A expenses remained flat at 18.3% (vs 18.2% in 1QFY21) resulting in improved EBITDA margins sequentially, by 160 bps to 16.4% (14.8% in 1QFY21). The management believes the 2QFY21 margins to be sustainable in the long term.

Outlook

Given healthy deal momentum and rising demand for digital technologies we revise our estimates higher. The stock is trading at a P/E of 23.4x/19.4x FY21E/22E, respectively. We arrive at a revised price target of ₹1,403 and upgrade our rating on the stock to a BUY.

For all recommendations report, click here

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