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Dalmia Securities
Persistent Systems (Hold)
CMP: ₹776.55
Target: ₹873.8
Persistent Systems is a mid-size Pune-based IT company, engaged in outsourced software products development services. The company offers complete product lifecycle services. The company provides product engineering services, platform-based solutions and Internet protocol (IP)-based software products to its global customers.
Persistent reported weak revenue growth and margin for Q4FY2018 against our estimates due to de-growth in IP-led business. Consolidated revenue in dollar term was down by 4.6 per cent q-o-q basis but up by 7.3 per cent y-o-y to $116.95 million. In FY18, PARX contributed $8.8 million in revenues and during the quarter it was around $3.75 million. IP led revenue was down by 20.6 per cent q-o-q and 13.2 per cent y-o-y to $26.1 million in Q4FY18 on account of seasonality in IBM business as per earlier management guidance. However services revenues were up by 1.3 per cent q-o-q / 15.0 per cent y-o-y to $90.9 million.
Over the year’s Persistent has transformed itself from outsourced software services organisation to complete product lifecycle service organisation. This diversification has enabled the company to balance out a slow growing ISV space with a high growth Digital, IoT and product segment. At CMP of INR 807.65, stock is trading at a PE of 14.6x FY20E. Based on the FY20E EPS of ₹54.6 and our target multiple of 16.0x (5-year average PE ₹ 18.6x) we arrive at a target of 873.8.
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