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Chola Securities
Persistent Systems (Buy)
CMP: ₹528.7
Target: ₹619
Persistent Systems’ revenue of $127 million in 4Q was up 7.4 per cent y-o-y and down 1.8 per cent q-o-q in dollar terms. In rupee terms, revenues grew by 11.4 per cent y-o-y and 0.4 per cent q-o-q aided by favourable currency movement. The linear revenue (services) grew by 4.2 per cent q-o-q while IP revenue declined q-o-q by about 25 per cent.
The share of accelerite business (about 4.1 per cent of revenue) grew 11.8 per cent q-o-q but decreased 29 per cent y-o-y.
Valuation: The near-term pressures on top line and margins likely to continue given weak macro environment and uncertainties caused by the pandemic. However, we believe that the cost rationalisations, strong balance sheet and opportunities arising in digital services to drive long-term growth. We expect the demand environment to revive in second half of FY21 as the pandemic situation eases.
We arrive at a price target of ₹619 based on P/E of 12.0x FY22EPS and arrive at a ‘buy’ rating on the stock.
Risks: Delay in product launches/ stronger rupee and/or adverse cross-currency movements could affect earnings.
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