Buy This Multibagger IT Stock For A Target Price of Rs 4,820 Says Axis Securities

Persistent Systems Ltd is a mid-cap IT firm with a market capitalization of Rs 30,218.45 crores. Banking, Financial Services & Insurance, Healthcare & Life Sciences, Industrial, Software & Hi-Tech, and Telecom & Media are the key sectors in which the company has specialisation and services. The company's stock soared from Rs 1689.25 on February 18, 2021 to Rs 3,915.15 as of 17th Feb 2022, 3:30 pm IST on the NSE, resulting in a multibagger return of +2,225.90 (131.77 percent) in a year. While the stock has gained +700.70 (21.80%) in the previous six months, it is now down by 105.50 (2.62%) in today's closing session. Axis Securities has issued a buy call on the stock, with a target price of Rs 4,820 per share, following the company's good Q3FY22 results.

Q3FY22 results of Persistent Systems Ltd (Persistent)

Axis Securities has highlighted that the company's "Revenue stood at Rs 1,492 Cr, up 9.2% QoQ and 36.2% YoY. Operating profits registered a growth of 11.2% QoQ to Rs 208 Cr and operating margins marginally expanded by 10 bps QoQ to 14%. The growth was led by the company's strong execution capabilities, higher utilisation, and lower travel cost during the quarter. Net profit for Q3FY22 stood at Rs 162 Cr, reporting a growth of 6.9% QoQ. Strong Q3FY22 performance was aided by growth in both Alliance and Technology Service Unit (TSU). While traction in the sales and deal wins continue to be robust, the large deal pipeline continued its healthy trend. Total TCV for Q3FY22 stood at $334 Mn and the company expects healthy deal win momentum and strong seasonality for IP revenue to aid FY22 performance."

The brokerage has also said that "On the vertical front, the BFSI vertical grew by 14.7% QoQ while Healthcare & Life sciences delivered a growth of 6.4% QoQ. Tech & Emerging vertical grew by 7% QoQ, IP led services by 15% QoQ while Services business delivered a growth of 4% QoQ. The majority of the verticals are witnessing strong recovery and are expected to continue reporting growth in forthcoming quarters backed by a strong deal pipeline. On a geographical front, North America (83% of revenue) improved by 10% QoQ, Europe (8% of revenue) grew by 2% QoQ, India business grew by 21% QoQ, and ROW business grew by 14% QoQ. For Q3FY22, the company generated free cash of Rs 2,000 Cr, up 12.1%."

Key investment rationale for Persistent Systems Ltd as per the brokerage

• The company has introduced broad-based ESOP schemes to tackle attrition, covering 80% of the employees. The pace of employee addition remains strong at 1,110, taking the total to 16,989. Strong employee addition would help in dealing with attrition and driving growth in the coming periods.
• The management is focused on building multi-year engagements with its clients, traction for which continues to be encouraging. Large deal wins continue their strong momentum and will support near-term revenue growth and mid-term margin trajectory.
• Persistent Systems is strategically aligned to the new leadership at its top client (IBM) with a focus on the hybrid cloud market. It incubated strong capabilities on IBM cloud and its deployment. Moreover, it continues to be a key partner with Red hat for Security, Data, and AI. The management is confident of achieving significant growth in this business in FY22.
• The recent decision by IBM management to spin off of IMS, Datacenter, and Hardware business is unlikely to have a significant impact on Persistent as it is not engaged in those areas in a material way. Its engagement with IBM is primarily in areas that are expected to continue with IBM (These areas include Cloud, Security, and Analytics, among others).

Buy for a target price of Rs 4,820 per share

The brokerage has claimed "The company's multiple long-term contracts with the world's leading brands have bolstered its business resilience along with providing long-term visibility. A strong deal pipeline and strong revenue growth momentum in Services vertical as well as in Allied businesses will enable the company to deliver a higher growth trajectory vis-à-vis its peers. We recommend a BUY rating on the stock and assign a 38x P/E multiple to its FY24E earnings of Rs 126.8/share to arrive at a TP of Rs 4,820/share."

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.