Persistent Systems Ltd. share price target

Maintain BUY with a TP of Rs745, 14x Dec-19E. We attended Persistents (PSYS) Investor Meet, as the company showcased its digital prowess with multiple use-cases/demos and a peek into its hackathons. We maintain our faith on PSYS and expect growth ahead, based on (1) New partnerships (USAA, Partners HealthCare), (2) Market expansion (Parx to support ramp-up in Europe), (3) New large logo wins in Digital and its scalability, and (4) Focus on sales re-alignment to improve cross-sell. We believe that the structural transformation is underway with increasing share of IPs and digital in the overall mix (29% of rev).

Continues to maintain its leadership in terms of adopting latest technology trends. But, it has lagged in terms of scaling capabilities, which it expects to change with IoT, given its strong capability, large opportunity, early-mover advantage and low competition (that...

We attended the Persistent Systems (PSL) analyst meet wherein it outlined its strategy and shared insights about latest developments in its digital transformation journey. This year also, PSL showcased its digital service offerings through live HACKATHONS to demos presenting multiple use-cases around IoT and machine learning. Also, PSL showcased its products as Rovius- Enterprise Hybrid cloud, Sentient- Real time endpoint insights and Concert- IoT product development and emphasised on focusing on healthcare, BFSI and industrial segments....

We attended the PSYS Analyst day in Pune, where the company demonstrated its multiple solutions ready to hit the market, while also laying out its growth strategy and explaining the opportunities in Blockchain, though long drawn. Appended below are our key takeaways from the event: A suite of ready solutions to take to market: PSYS demonstrated with use cases a number of solutions that it has invested into and readied over the recent period, which is in line with its strategy of delineating revenue growth from headcount growth in the new services era. These included its solutions in...

Persistent (PSYS) delivered in-line revenue (~USD 118 mn) in Q2 led by strong traction in Digital (20.9% of revenue; up 21% QoQ). EBITDA margin too was in line with expectations, up ~90 bps sequentially, aided by operating efficiencies (80 bps improvement in SG&A;).

Persistent Systems is a global software company specializing in product and technology services. Persistent Systems is a global software company specializing in product and technology services.

Maintain BUY with a TP of Rs 715, 14x Sep-19E. Persistent (PSYS) delivered strong revenue numbers (4.5% QoQ, with 2.9% organic), while operating performance came in-line with estimates. Revenue at USD 118.1mn included USD 1.9mn (2-month consolidation) from the Parx acquisition. Growth was led by (1) Digital (20.9% of rev) at 12% QoQ (organic), (2) Services (43.7% of rev) at 2.7% QoQ, and (3) Accelerite (8.1% of rev) at 2% QoQ. EBITDA came in at 15.2%, +87bps QoQ, supported by lower SG&A;% (+78bps margin impact) on operational efficiencies.

Aided by a strong 21.4% QoQ growth in the Digital business, Persistent Systems (Persistent) has delivered a healthy performance in 2QFY18. Its revenue grew by a healthy 4.5% QoQ to US$118.1mn exceeding our estimate by 1.6%. Excluding the acquisition of PARX, organic revenue grew by 2.9% QoQ. Digital business now accounts for >20% of Persistent's total revenue. Revenue from Alliances business declined by 2.3% QoQ owing to lower revenue (-3% QoQ) in the key IBM account. Further, revenue from Services business grew by 2.7% QoQ, while Accelerite (product business) recorded 2% QoQ growth in revenue. Service-wise, Enterprise remained the key growth driver with the revenue rising by an impressive 11.4% QoQ and 37.7%...

Digital (12% QoQ) was an encouraging sign. In-line profitability despite onsite centricity: Incremental growth contribution from onsite (11.5% QoQ) and lower-margin Parx was detrimental to profitability during the quarter. However, 140bp improvement in utilization and 120bp optimization of G&A; expenses drove EBITDA margin expansion of 90bp to 15.2%, ultimately meeting expectations of 15.4%. Higher-than-expected PAT growth of 12.4%, despite in-line operational performance, was led by higher other income....

Enterprise segment - BFSI and Healthcare remain focus areas and management expects overall growth momentum to sustain (Q1FY18 up 9% QoQ). The company has also strengthened its sales team to boost growth prospects.