Maintain 'buy' on Persistent Systems - TP Rs.650 - Geojit BNP Paribas Financial Services

- Buy rating on Persistent Systems is maintained with a target price of Rs.650. The stock is currently traded in the range of Rs.550.

- Company's USD revenue in 4QFY13 inched up 2.2% qoq and missed analysts' estimates on volatile IP revenue.

- However, the EBITDA margin was ahead of market view on reversal of doubtful debt. Better EBITDA offset higher royalty, knowledge transfer and acquisition costs.

- EPS beats analysts' estimates by 14% on higher forex gains.

- IP revenue was 1.7% down qoq and increased 65.7% yoy. Services grew 3.1% qoq.

- Management is targeting higher growth in FY14 against 14.6% growth in FY13 on a higher pipeline, benefit from senior hires and acquisitions.

- The company sees IP sales rising medium term to 25% of the total and expects stable margins despite wage hikes and more product investments.

- It seems that IP revenue is the key growth driver for Persistent. The company's FY14 target for IP revenue growth is in high double digit and this would be enough to largely achieve the overall growth estimate of 18%.

- 600 hires in 2H and falling attrition to 14.4% from 18.3% yoy are also encouraging.

- It seems that the stock would be volatile in the near term.

Source : Equity Bulls

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