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IIFL
Persistent Systems (Buy)
CMP: ₹677
Target: ₹755
Persistent Systems’ analyst meeting was a departure from the usual format of business presentations. Breakout sessions about its enterprise business (27 per cent of revenue) and development methodologies were the highlights. It was evident that Persistent Systems made significant investments in enhancing its offerings for enterprise clients.
Management believes that its modular platform and agile methodologies enable it to develop digital applications rapidly. Further, commentary indicates that its enterprise pipeline has larger deal sizes ($3-5 million) now. While these are positives, one issue has been that being a new entrant in enterprise IT, Persistent Systems may lack the sales relationships and reference projects of competitors. Further, slow growth in its mainstay ISV business (57 per cent of revenue; 2 per cent y-o-y dollar organic) has been an overhang. Due to robust growth in its enterprise business, we see a healthy 13.7 per cent PAT CAGR over FY16-18ii. Valuations have corrected in the recent past. We remain positive.
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