Maintain ADD on Persistent Systems - Spectacular Q1! - HDFC Securities

Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities and Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities.

We maintain ADD on Persistent Systems (PSYS), following a stellar Q1 and a steady deal momentum. PSYS' growth leadership is premised on (1) strong new deal wins (USD 148mn new win TCV with total book to bill of 1.5x in Q1), driven by healthcare & life-sciences and BFSI verticals; (2) improved client mining reflected in strong scale-up in >USD 5mn+ client bucket as well as T2-10 growth; (3) robust headcount addition (2,000 freshers to be added in FY22E) with headcount ~40% higher in the past three quarters; and (4) Salesforce practice and Azure practice driving growth. Our target price of INR 3,260 values PSYS at 30x Jun-23E, supported by a 28% EPS CAGR over FY21-24E.

Q1FY22 highlights: (1) PSYS' revenue came in at USD 167mn, +9.2/27.3% QoQ/YoY. (2) Growth in Q1FY22 was broad-based across the verticals, led by healthcare & life-sciences at +15.9% QoQ, followed by the BFSI vertical at 11.7% QoQ and technology & emerging vertical at 5.1% QoQ. (3) Revenue from T1 improved 3.7% QoQ, contributing 17% of the total, while revenue from top 5/10 witnessed robust growth of 9.5/10.1% QoQ respectively. (4) EBIT margin stood at 13.5%, +39bps QoQ, supported by lower depreciation and amortisation cost, which offset the negative impact of visa cost during the quarter. (5) PSYS reported a sequentially flat TCV of USD 245mn, which included new TCV wins of USD 148mn (+7.3% QoQ). (6) PSYS added 1,224 headcount in Q1FY22 (vs. 2,860 in H2FY21) and expects to add ~2,000 freshers in FY22E (400 already added in Q1). (7) PSYS will roll out a wage hike, effective Q2FY22, which will act as a margin headwind.

Outlook: We have factored in USD revenue growth at 28/21/18% and EBITDA margin at 16.5% each over FY22/23/24E, resulting in FY21-24E EPS CAGR at 28%. At CMP, PSYS is trading at 29x FY23E.

Shares of PERSISTENT SYSTEMS LTD. was last trading in BSE at Rs. 3161.2 as compared to the previous close of Rs. 3250.2. The total number of shares traded during the day was 20221 in over 2913 trades.

The stock hit an intraday high of Rs. 3248 and intraday low of 3135. The net turnover during the day was Rs. 64503844.

Source : Equity Bulls

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