Persistent Systems listed as ‘top pick of the week’ by Axis Securities – 4 key reasons

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The brokerage has a ‘buy’ recommendation on the stock with a target price of 7,115, indicating an upside of 10 percent from its current market price of 6,526.

Persistent Systems headquartered in Pune has specialised services in cloud computing, digitisation, and business analytics, among others. Persistent has leadership in Enterprise Software, Consumer Software, and Innovation Services. The experienced management has a strong focus on increasing wallet share from existing clients. Furthermore, demand momentum from top clients continues with good traction in the adoption of collaboration tools, cloud, and digitisation.

Stock Price Trend

The stock has gained around 68 percent in the last 1 year and almost 73 percent in 2023 YTD, giving positive returns in 9 of the 12 months in the current calendar year so far, gaining the most in August, over 13 percent, and shedding the most in July, down over 5 percent.

It has risen almost 3 percent in December so far, extending gains for the fifth straight month since August. Between August and December, the stock surged over 40 percent.

The stock hit its record high of 6,674.70 in intra-day deals today (December 12). Meanwhile, it has advanced over 77 percent from its 52-week low of 3,764.05, hit on December 26, 2022.

Earnings

In the September quarter, Persistent System’s profit after tax (PAT) grew 19.7 percent year-on-year (YoY) to 263.27 crore against 220 crore in the same quarter last year.

Meanwhile, it reported a 17.7 percent YoY growth in Q2FY24 consolidated revenue at 2,411.7 crore, helped by robust order bookings. In the same quarter last year, the IT player’s revenue was at 2,048.6 crore. Sequentially, the company’s revenue grew 3.9 percent. While in the US dollar terms, the company’s revenue grew 14.1 percent YoY and 3.1 percent quarter-on-quarter (QoQ).

The company’s Q2 EBITDA grew 10.1 percent YoY to 405.16 crore. However, sequentially (QoQ), EBITDA was down 4.2 percent. Its order bookings exceeded $475 million in total contract value (TCV).

Investment Rationale

Accelerating demand for ER&D services: Digital engineering spending is accelerating across industries, and companies moving from traditional to digital engineering will quickly adopt digital engineering. Major industries such as Manufacturing, BFSI, Media and Technology, Retail, Healthcare Payers and Providers, and Travel and Hospitality are developing new products and services to differentiate themselves in their respective industries, thereby creating remarkable opportunities for the company, said the brokerage.

Robust demand for product engineering services: Persistent has a strong presence in product engineering services across verticals and geographies. The product engineering services market is expected to grow from $676.17 billion in 2016 to $1,174 billion by 2025, at a CAGR of 8.2 percent, noted Axis. Key trends that are driving the market are a) Growing environmental awareness, b) Increasing use of alternative fuel and renewable energy, c) Convergence of technologies and crossing of device boundaries, d) Growing use of electronic components and communication technologies, and e) Increasing demand from new middle-class consumers in the emerging markets, it added.

Digital solutions will accelerate the revenue growth: Digital is an important part of Persistent’s future growth journey with revenue from digital business continuously growing, said the brokerage. Digital revenue contribution has grown meaningfully from 14 percent of the total revenue in Q2FY17 to 42 percent of the total revenue by the end of Q2FY24. Persistent’s management is seeing strong traction in digital transformation demand where customers are looking at custom-built development on newer technology. It targets overall double-digit revenue growth for FY25E on account of healthy traction in the Healthcare and BFSI segments. The company’s strategy is to focus on IP-led offerings, digital transformation, software-based offerings, and large enterprise accounts for its future growth, pointed out the brokerage.

Better vertical mix to aid higher growth momentum: As per the brokerage, Persistent provides services to main verticals viz BFSI, Healthcare, Life Science, Technology, and emerging verticals. BFSI vertical has maximum contribution to the revenue (32 percent to the top line). Pharma & Healthcare is the second largest vertical (contributes 20 percent to the top line). Technologies & other emerging verticals contribute the rest. Persistent has a better vertical mix as compared to other Indian peers. The BFSI segment is one of the fastest-growing verticals with robust demand for digital transformation and cloud. The healthcare and pharma vertical is also seeing robust demand after the global pandemic. It believes a better vertical mix will help Persistent to generate long-term sustainable growth.

In summary, Persistent’s strategy focuses on capitalising on the accelerating demand for ER&D and product engineering services, leveraging its strong position in digital solutions, and benefiting from a well-balanced vertical mix to achieve sustained growth.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.

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Published: 12 Dec 2023, 01:12 PM IST

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