Emkay Global Financial has given Buy recommendation for Persistent Systems with a target price of Rs. 3700 in its research report issued on Sep 30, 2021

Emkay Global Financial’s report on Persistent Systems

Persistent Systems has entered into an agreement to acquire Software Corporation International (SCI) and its affiliate Fusion360 LLC for a cash consideration of USD53mn (~3.1x EV/S on CY20 basis). It has also signed an agreement to buy certain assets from Shree Partners LLC USA and business from its Indian subsidiary Shree Infosoft Pvt. Ltd. for a cash consideration of USD6.87mn (~0.9x EV/S on FY21 basis). Deal rationale: SCI brings domain consulting capabilities and specializes in payments solutions, integration and support services for leading US banks. SCI enhances PSYS’s capabilities and serves as the foundation of a dedicated payments business unit. SCI expands PSYS’s BFSI client footprint with ~10 marquee customers from top banks in North America and over 90 employees in the region. PSYS has announced a dedicated payment business unit, which will be headed by D. Keith Sides, President and CEO of SCI. The Shree acquisition expands PSYS’s BFSI capabilities in the cloud, data and infrastructure domains. It also enables PSYS to deliver critical services to a strategic client, which is a leader in the global claims management industry. Shree adds over 200 employees, largely in NCR, India, and clients across US and Europe in BFSI and Travel & Hospitality. Additionally, SCI expands PSYS’s presence in Charlotte, a key hub for the US BFSI industry. Shree Infosoft adds a new delivery location in NCR.

Outlook

Given the size of the deals (~4% revenue accretion/low-single digit EPS dilution due to amortization charges and lower other income in Year-1), we do not expect any meaningful revision to our earnings estimates. We have a Buy rating on the stock with a TP of Rs3,700 at 33x Sep’23E EPS.

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