Prabhudas Lilladher recommended hold rating on Persistent Systems with a target price of Rs 618 in its research report dated April 30, 2019.
Prabhudas Lilladher's research report on Persistent Systems
Persistent reported weak revenue & margin performance in Q4FY19. Persistent is seeing little improvement in revenue trajectory of Services & Digital (70% of revenues) since last 2 quarters. Despite offshoring to tackle protectionism, we can see signs of revenue recovery in services business, management is trying to strengthen the portfolio in digital also. Revenue performance was weak due to seasonality of IBM/IP business (decline of 17% QoQ). Persistent saw decline in its IP sales for the past two quarters (flat growth in FY19) and stagnation in services growth rate (+3.2% yoy growth in FY19). Company has hired new CEO Mr. Christopher O'Connor who was in IBM before for nearly ~20 years. We believe he can bring some revenue acceleration in laggard IBM portfolio (25% of the revenues). Management sees revenue trajectory improving in FY20E. We expect the IBM/IP segment to see revenue acceleration from FY21E. Due to volatility in revenue performance, Persistent will continue to trade on lower multiples.
Outlook
We expect revenue CAGR of 6% from FY19-FY21E & our revised TP stands at Rs. 618 (11x FY21E EPS) (earlier: Rs. 625). We have Hold rating on Persistent & stock trades at 12.6X/ 11.3X on EPS of Rs. 50/ Rs. 56 for FY20E/21E.
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