Persistent Systems Q2 Review: Dolat Capital Maintains 'Sell' But Hikes Target Price — Here's Why

NDTV Profit’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer NDTV Profit’s subscribers an opportunity to expand their understanding of companies, sectors and the economy. 

Dolat Capital Report

We believe Persistent Systems Ltd. is well-positioned to deliver steady revenue growth, which should drive a healthy ~17% EPS CAGR over FY25-28E. However, the stock's current valuation of 45x on a TMF basis is still rich, trading above its three-year median of 42.6x.

This elevated multiple despite weakening macros, in our view, leaves the stock price unfavorable on a risk-reward basis. Hence, we value the stock at 36x FY28E EPS (implies over 2x on PEG basis) of Rs 145 with revised target price of Rs. 5,220 and maintain our ‘Sell’ rating on the stock.

Persistent Systems posted revenue of $460 million, up 4.4% in CC terms (our estimate: 3.9%), led by strong growth in BFSI, growing 7% QoQ, while other verticals also contributed healthily (Healthcare up 3.8%, Tech up 2.2%).

Ebit margin rose 80bps QoQ to 16.3%, aided by +80bps from reduction in software license cost (reseller charges), +60bps FX, & +30bps offshoring; partly offset by -50bps higher doubtful debt (healthcare client), -20bps lower utilization, and -20bps higher D&A (Capex).

Management is confident of systemic operating profit margin gains over FY25-FY27E.

Healthy ACV/TCV wins (up 15% TTM basis) and a strong pipeline have led management to turn incrementally positive from its earlier cautious stance. We raise our FY26E/FY27E EPS estm by 3% each and introduce FY28E EPS at Rs 145.

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.