KR Choksey has given Accumulate recommendation for Persistent Systems with a target price of Rs. 4928 in its research report issued on Apr 29, 2022
KR Choksey’s research report on Persistent Systems
Persistent Systems Limited (PSYS) Q4FY22 performance was marginally higher than our estimate. Dollar Revenue was up 9.1% QoQ to USD 217Mn (KRChoksey est. USD 215Mn). Rupee revenue grew by 9.8% QoQ to INR 16,379Mn (KRChoksey est. INR 16,167Mn). Reported operating margin remained flattish at 14%, fueled by lower travel/sub-con cost and forex (+30bps) which was partially offset by overall inflationary environment, higher CSR and one time cost of acquisitions. Reported Net profit grew by 14.6% QoQ to INR 2,010Mn (KRChoksey est. INR 1,824Mn) with margin of 12.3%, up 51bps QoQ. PSYS has nearly doubled its profit, 2.5x its OCF and 75% increase in headcount over the past two years (FY20-22). Material rise in profits over FY22-24E, with revenue to comfortably cross the USD 1bn threshold level in FY23E, large client mining (USD 5mn+ >40% higher over the past year) translating into a larger participation (complimented by larger deals and supported by recent acquisition). Our target price of INR 4,928 is based on 34x Mar-24E EPS with EPS CAGR of 26.7% over FY22-24E.
Persistent is currently trading at a valuation with a P/E multiple of 37.3x/30.1x on FY23E/FY24E earnings. We expect strong deal momentum across verticals, higher focused on digital business, aspiration to attain USD 1bn run-rate over the next 6-8 quarters will aid growth over the medium to long term in future and hence we upgrade our target price to INR 4,928 (Earlier Target Price INR 4,576/share), with an upside of ~14% over the current market price along with our view to an “ACCUMULATE” rating to the stock with a P/E multiple of 34x to the FY24 estimated EPS of ~INR 145.