Accumulate Persistent Systems Ltd - Motilal Oswal

Persistent Systems Limited (PSYS IN; Mkt Cap USD352 mn, CMP Rs392, Accumulate)

Quarterly total income grew by 20%/9.5% on yoy/qoq basis and net profit grew by -16%/-8% on yoy/qoq basis due to cost pressure on operating front. On a yearly basis FY11 total income/net profit grew by 32%/21%

OPM for the quarter decreased by ~400 bps yoy and qoq, which was aided by extra salary cost of Rs 7 cr due to mid term salary hike in Jan'11.

The company guided revenues at $220 mn and flat EBIDTA and PBT margins for FY12. Company made revenues of $170 mn during FY11.

At our recommendation price the stock was trading at around 13.5x/11x of FY11E/FY12E earnings, which was similar to peer valuation. The stock price performance has remained subdued since our recommendation and it is still quoting at similar valuations. We continue to remain positive on the stock with superior growth outlook in its target market. We are reducing our EPS estimates by 10% for FY12E to accomodate for lower expected margins. Maintain Accumulate with Target of Rs 500 in 6 months.

Source : Equity Bulls

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