Persistent Systems Ltd. share price target

Persistent reported weak numbers in Q1FY20 due to a sequential decline in Change in Estimates | Target | Reco its Digital (-6% QoQ; ~23% of sales) and Accelerite (-40% QoQ; ~4% of sales) businesses. Overall, revenues in USD terms grew 1.1% QoQ, while...

Despite strong domain expertise in ISV and niche specialisation (partner-led) in BFSI/Healthcare verticals, PSYS has lagged peers significantly (both rev/EPS) over the past two years. Low annuity mix (project-heavy model), limited large deals and low sales velocity have been the nemesis. The recent management induction (CEO/Head Tech services/Head IBM Alliance) is aimed to reverse this. We believe that growth recovery will be protracted and expect USD rev/EPS CAGR of 7/3% CAGR. Valuations are supported by high cash (30% of M-cap) and FCF yield (~8%). We maintain NEUTRAL on Persistent Systems (PSYS) following a muted 1QFY20. It is vital that the recent top management revamp helps break the inertia on growth. Our TP of Rs 615 is based on a generous 13x Jun-21E EPS, premised on hope around this development.

Revenue growth remains elusive: 1QFY20 revenues declined 3.2% YoY to USD119.6m (v/s est. of 1.3% decline), EBIT declined 8% YoY to INR0.9b (v/s est. of 1% decline), while PAT declined 5.6% YoY to INR825m (v/s est. of 7.4% growth). Services revenue grew 1.2% QoQ to USD93.9m (v/s est. of USD93.2m). IP-led revenues were flat QoQ at USD25.8m (v/s est. of...

Persistent Systems came out with muted set of numbers in Q1FY20, which were a tad below our estimate. Revenue was flat (-0.3% YoY) at Rs 8321 mn against our estimate of Rs 8460 mn. EBITDA stood at Rs 1202 mn against our estimate of Rs 1360 mn. PAT for the quarter stood at Rs 825 mn, slightly below our estimate of Rs 865 mn. Due to management transition and client specific (IBM) issues, we already toned down our estimate post last quarter result. As expected, this quarter was lacklustre for Persistent and Q1FY20 numbers mostly matched our estimate. We are...

Persistent Systems (PSYS) reported another quarter of subpar operating performance as both revenue and operating margins missed estimates in Q1FY20.

With gain in size of the business operations and diversity, Persistent has been constrained on management bandwidth at the leadership level. To address this long due requirement, Persistent appointed Mr. Christopher (Chris) O'Connor as CEO of the company in Feb'19. Chris is a long time IBM veteran and has led their IoT business unit. He was part of the top-300 club at IBM, and has held various managerial roles. We believe that Chris's experience, understanding of the IBM products and access with all key IT decision makers could be instrumental to drive the Alliance business (~29%...

The company's FY19 dollar revenue growth was muted (at mere 2.2% YoY) mainly on the back of demand fulfilment issues. In this respect, the management has restructured its sales team by hiring sales people, market business leaders and aligning incentive structure. Further, the company is now focusing on a verticals led strategy to drive cross sell and up sell opportunities. The company will focus on healthcare & life sciences, BFSI and industrial to drive sales. It would also aim to increase opportunity in reseller business on the IP side. In addition, M&A; and partnerships would...

PSYS' new CEO shared the broad tenets of its strategy, which involves various structural changes, one of the most important being alignment of sales team.

Persistent Systems Ltd (PSYS) is one of the leading outsourced product development (OPD) companies in India. As on Q4FY19, the company recognized about 78.4% revenue from services and 21.6% from IP-led business. The company has strong work force of 9,962 employees. PSYS' business spread across North America (80.9%...

Revenue growth in US$ term remains lower than our expectation. Persistent's Q4FY19 consolidated revenue decreased by 2% qoq in US$ terms to US$ 118 mn (vs expectation of US$ 121 mn) led by 15% qoq decrease in IP revenue (partly due to seasonality factor and partly due to lower revenue from top clients). Going forward, the company indicated that...