Persistent Systems share price: Sharekhan retains Buy rating with a revised price target of Rs 2200

Sharekhan interacted with Persistent Systems management to understand the growth prospects in Technology Services Unit (TSU) and Alliance business, deal momentum, Cloudification opportunity, and margin outlook. Mid-tier IT companies have been outperforming large-cap companies over the past three quarters. Among mid-tier Indian IT services companies, Persistent Systems remained the only Indian IT company to report sequential growth in Q1FY2021 and Q2FY2021 and reported strongest growth among leading Indian IT companies in Q3FY2021, aided by reinvigorated sales, negligible exposure to troubled verticals, and focus on high-growth verticals. Sharekhan retains Buy rating on Persistent Systems with a revised price target of Rs 2200. Persistent Systems share price today is Rs 1906, up Rs 12 or 0.6%

Though revenue from IP-led business would decline on a sequential basis in Q4FY2021, Sharekhan believes Persistent Systems would continue to report q-o-q growth in Q4FY2021 because of strong revival in the BFSI vertical (absence of cost control by its large customers owing to furloughs) and continued growth in the healthcare and technology verticals. PSL reported its order book of $302 million (book to bill of 2x) for the first time in Q3FY2021, of which $175 million is net new. Sharekhan believes the TSU segment would continue its growth momentum in the coming quarters, led by robust deal wins, healthy deal pipeline, new logo wins, and strong demand environment. Further, growth was supported by sharpening focus on the signing of the large long-term/annuity deal over the past few quarters.

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Persistent Systems Management remains optimistic that Alliance business would return to its growth trajectory from Q1FY2022, led by benefits from the Red Hat area, expansion of relationship with IBM, contribution of revenue from large deals won earlier, and cross-selling opportunities. Hence, Persistent Systems management is confident that its revenue growth would remain in the top quartile of industry growth in FY2022E. Notably, net hiring stood at 1,618 employees during Q3FY2021, of which 70% are lateral hires.

This indicates that the Persistent System plans to deploy them immediately in certain large projects that it has won recently and avoid the risk of talent supply shortage in digital transformation projects. Management aspires to achieve $1 billion revenue over the next 3-4 years with an improving margin profile. Persistent System Management expects growth would be driven by expansion in European region, improving opportunities around digital transformation programmes, and cross collaboration between TSU and Alliance business.