Persistent Systems Ltd. share price target

Persistent System's Profit for the quarter grew by 9.1%YoY/7.4% QoQ to Rs 900 Mn during Q1FY21. Consolidated revenue stood at Rs 9,914 Mn for Q1FY21 vs 8,321 for the Q1FY20 registering growth of 19.1%YoY/7.0%QoQ. Strong YoY and QoQ growth in Q1 was led by BFSI as it continues to be a standout. Reported EBITDA was up by 21.3%YoY/14.9% QoQ to Rs 1,458 Mn, as compared to Rs 1,202 Mn,...

Persistent Systems (PSYS) reported a surprisingly strong set of numbers, with Q1 dollar revenue growth at 3.1% QoQ.

Background: Persistent Systems is one of the leading outsourced product development (OPD) companies in India. 4QFY20: Revenue from business offering mix: Services (83.7%) & IP led business (16.3%). The company has industry expertise in ISV (41.7%), Enterprise (42%) and IP Led (16.3%). The company's business is spread across North America (80.2%), Europe (8.8%), and RoW (11%).Company earns revenue from global delivery centers (33%), India (50.7%) and IP Led (16.3%). Total active clients stood at 1000+ including services and IP led business. Company's top client accounts 19.2% in revenues, top 5 (41.5%) and top 10 (49.9%)....

Persistent Systems Limited (PSL) delivered a steady performance in a tough environment, with better-than-expected performance in both revenue and operating profitability. USD revenue came at $127.1 million (ahead of our modest expectations), down by 1.8% q-o-q, attributed to significant 24.3% q-o-q decline in IP-led revenue due to weak seasonality and lower revenue re-seller business because of COVID-19 outbreak. However, the sharp decline in IP revenue was partially offset by 3.8% q-o-q growth in Technology Services Unit (TSU, 73.7% of total revenue), driven by strong 7% q-o-q growth in digital revenue. EBITDA margin improved by 41 bps q-o-q...

Persistent reported 1.8% QoQ decline in revenues as US$127mn (in line with our estimates) as Alliance Business de-grew 28% QoQ, partially off-set by 3.8% QoQ growth in Services (Technology+ Digital) Segment. OPM for the quarter improved 50bps QoQ to 9.2% (our estimate: 8.1%) led by lower volumes in reseller business in Q4. Technology & Digital segment (collectively 74% of revenues) continue to drive topline growth with 2.2% and 7% QoQ growth. PSYS expects these segments to outperform based on positive client interactions,...

Persistent reported a mixed set of Q4FY20 numbers. While revenues in dollar terms dipped 1.8% QoQ, EBIT margins improved 50 bps. In addition, PAT declined 4.7% QoQ mainly due to lower forex gain. The decline in revenue was mainly due to 24.3% decline in IP led revenues. The...

Additionally, we expect a higher emphasis on annuity revenue to address the performance The companys robust performance in 4Q (barring IP), healthy deal pipeline, and cautiously optimistic outlook indicate the near term COVID-19 disruption would not be as bad as we initially anticipated. Over the medium term, Persistent should be a key beneficiary of the COVID-19- led increase in uptake in digital services, given its high exposure to salesforce consulting and verticals such as Technology, Healthcare, and BFSI. In 4QFY20, revenue (USD) / EBIT (INR) / PAT increased 7%/-4%/-1% YoY v/s our Technology Services Unit (TSU) reported strong growth of 4.2% QoQ despite the disruption from COVID-19 during the quarter. In 4QFY20, revenue (USD) / EBIT (INR) / PAT increased 7%/-4%/-1% YoY v/s our Technology Services Unit (TSU) reported strong growth of 4.2% QoQ despite the disruption from COVID-19 during the quarter.

The spread of Covid-19 has led to lockdowns in many countries globally and could have adverse economic implications. In addition, the recent fall in crude prices could also have an adverse impact of fiscal health of oil producing countries. As a result, IT companies, which have considerable exposure to verticals such as oil, energy & utilities; banking & capital markets; manufacturing and travel & transport could see an adverse impact from the ongoing crisis. Companies like Wipro, Infosys in large cap and MindTree, NIIT Tech, Sonata software, Cyient, Accelya Solutions among...

PSYS' recent trends have been a tale of two cities with the TSU segment accelerating to mid-teens growth (vs. high single-digit avg. over 10 qtrs), while Alliance & Accelerite units continue to be choppy. PSYS' S&M re-alignment towards client mining, cross-sell and large deals as well as delivery rejig has resulted in strong uptick in TSU. Large opportunity exists to stabilise the volatility in Alliance portfolio (leadership change), but it may be gradual even as T1 account concentration continues to decline. Margins have bottomed-out and are expected to improve with oplev, stability in Alliance and SG&A efficiencies. Expect 10.5/12.5% CAGR in USD rev/APAT over FY20-22E. Key risks include worsening working capital and continued volatility in Alliance business. We maintain BUY on Persistent Systems (PSYS) following an in-line rev. TSU business is on an upswing (sustainable), Alliance business is work-in-progress and margins have bottomed-out. Our TP is Rs 745, at 13x Dec-21E (10-yr avg.) with moderate increase in est (~3%).