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Reliance Securities
Persistent Systems (Buy)
CMP: ₹654.5
Target: ₹745
Persistent in 3QFY19 posted a 2.2 per cent q-o-q rise in revenue, led by healthy Digital growth of 6.4 per cent q-o-q, even as IP revenue was soft (-0.2 per cent q-o-q) on account of the IBM reseller business seeing a revenue shift to 4QFY19.
Margins expanded by a healthy 252 bps q-o-q led by rupee depreciation, higher utilisation, higher pricing and higher offshore component. The company looks forward to at least 25 per cent growth in digital revenue, while new client wins are likely to ensure sustained growth, going forward. The Alliance business remains a key concern, as revenue declined by 2 per cent y-o-y. Looking beyond the top client is a critical issue for sustainable growth, in our view.
We believe Persistent’s long-term business direction remains on track, with focus on three key verticals — Healthcare, BFSI and MFG through four major services including data, artificial intelligence (AI) & machine learning (ML), cloud, security and Internet of Things (IoT). We are enthused with renewed focus on specific growth areas and verticals, and upcoming appointment of new MD, which could be a key stock driver.
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