Motilal Oswal is bullish on Persistent Systems has recommended buy rating on the stock with a target price of Rs 730 in its research report dated May 06, 2020.
Motilal Oswal 's research report on Persistent Systems
Despite the disruption due to COVID-19, Persistent’s strong performance within the Services segment (~15%/11% in 4Q/FY20, YoY) reflects its steady progress on turnaround. As the pandemic situation is expected to increase the uptake of digital services, we expect Persistent’s portfolio to benefit. High exposure to salesforce consulting and verticals such as Technology, Healthcare, and BFSI gives us this confidence. Nevertheless, IP revenue should continue to be an overhang. Historically, execution challenges and volatility in the IP portfolio have led to inconsistency in the company’s performance. However, the recent improvement witnessed in execution and a higher focus on annuity revenue should address this issue to some extent. A relatively higher share of dollar invoicing (v/s peers) cushions against a further impact on already depressed margins. •We upgrade our EPS estimates over FY20–22E by 20–22%. While material delay in clients’ discretionary spends is a monitorable risk, subdued multiples offer adequate margin for safety.
Outlook
Other concerns such as potential delays in discretionary spend persist. However, we believe subdued multiples offer adequate margin for safety. Even on depressed FY21E earnings, the stock is currently trading at 11x FY21E EPS. Our Target Price is based on 12x FY22E EPS.
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