Emkay Global Financial's research report on Persistent Systems
PSYS reported better-than-expected operating performance in Q3. Revenue grew 3.4% QoQ, despite impact of the higher-than-usual furloughs (150bps), lesser working days (50-100bps) and weakness in select clients. Management expects furloughs to extend into the next quarter and impact revenue growth by 50-75bps in Q4. Revenue growth was broad-based across Software, Hi-tech & Emerging industries (4.1% QoQ; ex-top client: 7.7%), Healthcare & Lifesciences (2.9%), and BFSI (2.8%). The services business has posted 9.2% CQGR in the last eight quarters, and Management remains confident (albeit watchful of macro uncertainties) about sustaining the growth momentum on the back of continued demand, robust deal intake (USD440mn in Q3; 1.7x book-to-bill), healthy deal pipeline, new logo additions, and steady progress in client mining. Management expects EBITM to expand by 200-300bps over the next 2-3 years, ahead of our expectations, on the back of revenue growth, flattening pyramid, SG&A leverage with progress on client mining, and large deals traction.
Outlook
We raise our EPS by 1%-8% for FY23E-25E, factoring-in the Q3 performance and higher margin assumptions. We retain BUY with TP of Rs4,500/share at 25x Dec-24E EPS (earlier Rs4,125).
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