Buy Persistent Systems; target of Rs 815: HDFC Securities

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HDFC Securities' research report on Persistent Systems

Persistent (PSYS) posted in-line revenue and an operational beat in 3Q. While the revenue growth was muted (despite seasonality tailwind), operational improvement seems sustainable supported by (1) Higher offshoring (in large accounts), (2) Better mix (higher Salesforce, Appian channel contribution) and (3) Utilisation increase. Revenue came at USD 120.8mn, +2.2% QoQ led by Digital (+6.4% QoQ) and Accelerite (+7.8% QoQ), offset by Services (-0.4% QoQ) and Alliance (+1.9% QoQ). EBITDA% stood at 19.7%, +252bps QoQ supported by gross margin expansion of +290bps (IP rev growth, bill-rate & higher utilisation). APAT came in-line at Rs 0.92bn, impacted by forex loss of Rs 0.24bn.

Outlook

Expect rev/EPS CAGR of 10/15% over FY19-21E factoring USD rev growth at 8.6/11.5% and EBITDA% at 18.3% each for FY20/21E. Maintain BUY with TP of Rs 815, 14x Dec-20E EPS.

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