Maintain BUY on Persistent Systems - Strong trajectory - HDFC Securities

Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities and Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities

We maintain BUY on Persistent Systems (PSYS). It is among our top picks in the sector, based on industry-leading growth profile, improving deal wins, and strong 4Q performance (despite Alliance seasonality). PSYS' growth leadership is premised on (1) strong new deal wins (USD 237mn new win ACV in 2HFY21) and increasing focus on client mining with larger deals stabilising the portfolio churn, (2) acceleration in Alliance business ahead, supported by portfolio and GTM strategy of T1 account, (3) technology differentiation and continued focus on partnerships (Salesforce, AWS, Red Hat) and sourcing for growth thrust, and (4) leadership augmentation (Salesforce, Europe, BFSI delivery). PSYS' operational improvement in FY21 is sustainable with an upward bias supported by efficiencies, utilisation, and offshore. Our target price of INR 2,350 values PSYS at 25x Mar-23E, supported by 26% EPS CAGR over FY21-23E and >40% RoIC.

4QFY21 highlights: (1) Revenue came in at USD 153mn, +4.6/20.3% QoQ/YoY in 4Q (+12.9% YoY in FY21). Within the segments, Technology Services posted +8.3/22.1% QoQ/YoY (+18.4% YoY in FY21), while Alliance business posted -7.3/+13.8% QoQ/YoY (-2.8% YoY in FY21). (2) Growth in 4Q was broad-based across the verticals, led by BFSI at +6.7% QoQ, followed by Healthcare & Life-sciences vertical at 5.7% QoQ and Technology & Emerging vertical at 2.9% QoQ. (3) Revenue from T1 improved 1.2% QoQ, contributing 17.9% of the total. (4) EBIT margin stood at 13.2%, +47bps QoQ, supported by lower SG&A and amortisation cost during the quarter. PSYS expects EBITDA margin to be in the range of 16-17%, supported by levers like cost optimisation, improved utilisation, and operational efficiencies. (5) PSYS reported TCV at USD 247mn (including new win TCV of USD 138mn) in 4Q and it is targeting it to reach in the range of USD 200-250mn per quarter.

Outlook: We have factored in USD revenue growth at +18.2/15.9% with Technology Services growth at +22.2/16.7% and Alliance growth at+4.6/+12.9% over FY22/23E respectively. We estimate EBITDA margin at 16.0/16.8% over FY22/23E, resulting in FY21-23E EPS CAGR at 26%. At CMP, PSYS is trading at 21.7x FY23E.

Shares of PERSISTENT SYSTEMS LTD. was last trading in BSE at Rs.2147 as compared to the previous close of Rs. 2038.55. The total number of shares traded during the day was 41874 in over 4272 trades.

The stock hit an intraday high of Rs. 2238.65 and intraday low of 1967.95. The net turnover during the day was Rs. 89559843.

Source : Equity Bulls

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