Emkay Global
Persistent Systems (Buy)
Target: ₹2,200
CMP: ₹1961.10
Persistent Systems Ltd is on track to reach the $1 billion revenue milestone by FY25 (implies nearly 15.4 per cent CAGR over FY21-25) on the back of continued strong traction in the Technology Services business, anticipated recovery in the Alliance business and M&A.
The Technology Services business is likely to sustain a 3.5-5 per cent CQGR in the medium term (4.4 per cent in last 6 qtrs), aided by strong deal wins (2.1x book-to-bill in Q3), healthy deal pipeline, growing annuity revenue (3/4th of revenue) and cross-selling opportunities across the client base.
PSYS has over $250 million cash on the books and is actively pursuing M&A to augment its domain capabilities, digital offerings and expand presence in Europe. It aims to drive Europe revenue to 15-18 per cent of total revenue in 3-4 years from less than 10 per cent currently.
We raise earnings estimates by 9.8 per cent/10.8 per cent for FY22/FY23, considering strong revenue growth momentum and low amortization charges (430 bps expansion over FY20-23). We retain Buy with a revised target price of ₹2,200 at 24x FY23E earnings (earlier 22x), based on a 27 per cent earnings CAGR over FY21-23 and improving medium-term growth prospects.