Buy Persistent Systems- TP Rs.450 - Geojit BNP Paribas Financial Services

- Maintain 'buy' on Persistent Systems with a target price of Rs.450 over one year.

- The company has reported muted USD revenue growth of 1.3% qoq, which has been expected.

- Modestly higher EBIT and better than expected other income led to higher than expected EPS.

- Revenue, EBIT, PBT and EPS in the first quarter around 23-26% of the full year target. With qoq revenue growth and margin expansion ahead, the company seems to achieve FY13 estimates.

- Management has noted improved demand visibility qoq and reported that the company has been growing ahead of NASSCOM's FY13 industry growth estimate of 11-14%. This suggests some potential upside even to the targeted 13.6%.

- Pricing and yields were stable qoq, while IP led revenue grew 16% qoq and 149% yoy.

- High attrition at 18.9% and higher than industry wage hike of 4-10% are worrisome issues. Falling headcount since 2QFY12 is also an issue. However, it seems that the company over estimated its hiring needs previously and it is now correcting.

- The company's broad picture is positive with a robust IP pipeline, consulting projects appear to be in growth track, the new sales force is aligned to the company's focus areas like cloud, mobility etc.

- The newly acquired assets in areas such as healthcare and network performance monitoring could provide upside over the long term.

Source : Equity Bulls

Keywords