Buy Persistent Systems; target of Rs 1520: HDFC Securities

HDFC Securities' research report on Persistent Systems

We upgrade Persistent Systems (PSYS) to BUY (ADD earlier) due to a structural pivot towards growth acceleration, following underperformance in FY16-20 period. PSYS’ relative outperformance in FY21 and growth acceleration (20% EPS CAGR over FY20-23E) is driven by (1) recovery in Technology Services (deal sourcing, partnerships, client mining, and improving annuity), and (2) better operational rigour and business synergies improving the operating profile translating into 22% FCF CAGR over FY20- 23E.

Outlook

Revival in Alliance business (Red Hat, Dassault) and prospects of better capital allocation (cash ~19% of M-cap) are value-accretive triggers. Our target price is Rs 1,520, based on 21x Sep-22E EPS and supported by 20% EPS CAGR, >35% RoIC.

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