Buy This Multibagger Mid Cap IT Services Stock, Shares Can Surge 24%: Axis Securities

Axis Direct in its report on Persistent System Ltd. has given a buy call to the stock of the company for a target price of Rs 3,900 apiece. According to the estimated target price and the current market price, the shares of the company are likely to surge by 24%. It is a mid-cap IT Services sector stock with a market cap of Rs 24,173.23 crore.

 Stock Outlook & Returns

The current market price of the stock is Rs 3,163 apiece on NSE. The stock's 52 week low is Rs 3,1020 apiece recorded on 20 June 2022. The 52-week high of the stock is Rs 4,987.50 apiece recorded on 3 January 2022.

Returns over the past 5 years

It has given 7.57% negative return in the past 1 week and 15.96% in the past 1 month, respectively. Over the past 1 year, it has given a 10.6% negative return. In the past 3 and 5 years, it has given 431.91% and 402.66% multibagger returns, respectively. 

Robust Performance; Capitalizing on Strong Demand to Sustain Growth

Persistent Systems reported robust deal wins in FY22 with new large deals totalling $1.2 Bn, manifesting its deep client engagement throughout the year. The company reported industry-leading revenue growth of 36% in FY22. It also reported healthy expansion in its operating margins, driven by higher offshoring, efficient utilization, lower attrition, and a superior service mix. In view of robust deal wins, Persistent Systems has proved to be a better service provider in the field of ISV, product development, customer experience, and other digital services

Financial Review

The company reported revenue of Rs 5,711 Cr in FY22, delivering an impressive growth of 36.4% YoY. Its operating margins improved marginally by 30bps to 16.8% and were aided by a superior service mix, lower subcontracting cost, and lower travel costs. The company's net profit stood at Rs 690 Cr, up 53.2% YoY with a net profit margin of 12.2%. The client concentration reduced to 42% from 49% in FY21 on account of strong client additions during the year, indicating strengthening business along with reducing client concentration risk. 

Operational Review

Persistent Systems witnessed an unprecedented demand for digital services and large investments in product development during the year primarily on account of the pandemic, and cost optimization efforts undertaken by many businesses across the world, which intensified the need for greater resilience and agility within enterprises. It also continued to outpace market growth and gained further market share globally. From the perspective of revenue distribution, the company has established a strong and geographically diversified presence. The US and Europe contributed 78% and 9% to the company's overall revenue while India and 'Others' contributed 11% and 2% respectively. Segment-wise, the BFSI contributed the highest at 34% of the revenue while Pharma & Healthcare and Tech & Emerging technologies contributed 20% and 46% respectively to the company's overall revenue. 

Key Strategies Moving Forward

(i) Focus on strategic clients to provide long-term sustainable growth
(ii) Investing in deepening the company's research and innovation strength.
(iii) Further expanding footprint across the globe.
(iv) Launching cloud platform and allied products like Cobalt.  

Key Competitive Strengths

(i) Capabilities to achieve strong deal wins and to capitalize on the digital demand wave.
(ii) Sharp focus on strategic clients to provide long-term sustainable growth.
(iii) Diversified and deep presence across geographies.
(v) Well-spread revenue streams across multiple verticles.
(iv) Higher localization strengthening business resilience.

Outlook & Recommendation

The management has guided industry leading double-digit growth in FY23 & FY24 against the backdrop of robust deal wins. Additionally, higher offshoring, better utilization, and lower attrition are likely to expand the company's operating margin moving forward. "We recommend a BUY rating on the stock and assign a 27 x P/E multiple to its FY24E earnings of Rs 143.2/share to arrive at a Target Price of Rs 3,900/share, implying an upside of 22% from the CMP," the brokerage has said. 

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.