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Motilal Oswal Report
Persistent Systems Ltd.'s growth momentum remained strong, which is evident from the industry leading performance over the past few quarters. We expect a higher emphasis on annuity revenue from the management, which will address the inconsistency issue to some extent.
The company’s:
strong performance in recent years,
healthy growth in top accounts, and
robust deal pipeline, are likely to sustain the growth trajectory.
The stock is currently trading at 31 times FY25E earnings per share. Our target price is based on 29 times FY25E EPS. We reiterate our 'Neutral' rating as we believe the positives have already been captured and the stock offers limited upside from current levels.
Persistent Systems’ U.S. dollar revenue rose 3.2% QoQ in consant currency terms to $291.7 million, ahead of our estimate of 2.9% QoQ CC. In reported USD figures, the growth was 3.1% QoQ during the quarter.
Growth was led by healthcare (up 7.0% QoQ) and Hi-Tech (up 3.8% QoQ), while banking, financial services and insurance was flat QoQ.
In terms of regional performance, North America grew 3.1% QoQ, while Europe saw a 1% QoQ increase.
Persistent Systems witnessed the highest ever deal total contract value of $479 million, up 26% QoQ and 30% YoY (1.6x book-to-bill). Net new TCV was also at a record high of $313 million. Similarly, annual contract value recorded an all-time high of $316 million.
Ebitda margin stood at 16.8%, down 140 bp QoQ, on account of wage hikes. Margin was 90 bp below our estimate of 17.7%, due to higher selling, general and administrative expenses.
Adjusted profit after tax stood below our estimate at Rs 2.6 billion (down 5% QoQ), due to the miss on margin.
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