Broker’s Call: Buy Persistent Systems

| Updated on October 06, 2020

Axis Securities

Target: ₹1,580

CMP: ₹1,301.80

We initiate coverage on Persistent Systems Ltd (Persistent) with a Buy rating and target Price of ₹1,580 valuing at 21x to its FY23 EPS. We believe Persistent is well-placed to bounce back post-Covid-19 pandemic led by better vertical mix (having minimal impact), thereby faster recovery in terms of IT spending; Significant growth opportunities in technology services and allied services — robust IBM portfolio will help gain the momentum; sustainable operating margins; healthy balance sheet, strong return ratios and free cash flow generation; and ramp-up in new deal wins and strong client addition.

Digital is an important part of Persistent’s future growth journey with revenue from digital business growing 24 per cent CAGR over FY18 to FY20.

The product engineering services market is expected to grow from $676.17 billion in 2016 to $1,174 billion by 2023, at a CAGR of 8.2 per cent. Key trends such as growing environmental awareness and increasing use of alternative fuel and renewable energy; convergence of technologies and crossing of device boundaries; increasing use of electronic components and communication technologies; and growing demand from new middle-class consumers in the emerging markets are driving the market and expansion of engineering services.

Published on October 06, 2020

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