MOSL: PERSISTENT SYSTEMS (Downgrade to Neutral)- Valuation factoring in industry-leading performance
PERSISTENT SYSTEMS: Valuation factoring in industry-leading performance; Downgrade to Neutral
(PSYS IN, Mkt Cap USD3.1b, CMP INR3012, TP INR3130, 4% Upside, Downgrade to Neutral)
- PSYS reported a strong 1QFY22, with USD revenue growth of 9.2% QoQ (300bp above our estimate) and 17% EBITDA margin, despite seasonal visa costs and robust employee additions.
- The company’s capability in maintaining its over USD200m TCV run-rate is encouraging and should result in it continuing its industry-leading growth rate in FY22. With a strong demand commentary and deal momentum, we expect it to continue to deliver top tier IT Services revenue growth among our midcap IT coverage (over 18% FY20-23E CAGR).
- On top of this, the management guidance of good growth in the Alliance business should help it deliver 24.6% USD revenue growth in FY22, despite a higher base effect (12.9% YoY) in FY21.
- We continue to expect PSYS to deliver a 50bp improvement in EBITDA margin in FY22, helped by a favorable operating leverage, which should compensate for any pressure from a wage hike or growing attrition (16.6% in 1Q, up 490bp QoQ).
- After a 290% (v/s Nifty IT index up 77%) return in PSYS over the last one year, the stock is now trading at 29x FY23E P/E. This is one of the highest in our midcap IT Services peer group, and factors in a favorable growth and demand environment. Hence, we are downgrading the stock to Neutral (from Buy) as we see limited upside from current levels.
- We upgrade our FY22-23E EPS estimates by 6-7% on the back of a 1QFY22 earnings beat. We continue to value the stock at 30x FY23E EPS.
Persistent Systems Limited is engaged in the business of building software products. The Company offers complete product life cycle services. The Company's segments include Infrastructure and Systems, Telecom and Wireless, Life science and Healthcare, and Financial Services. The Company's products include Connected Healthcare, which is an integrated healthcare ecosystem; ShareInsights Platform, which allows organizations to analyze an overlay of enterprise data with public or cloud sources to derive insights; Digital Banking, and Accelerite, which provides cloud solutions, endpoint management and mobility. The Company provides product engineering services, platform-based solutions and Internet protocol (IP)-based software products to its global customers. It has presence in North America, Europe and Rest of the World. Its subsidiaries include Persistent Systems France S.A.S., Persistent Systems Malaysia Sdn. Bhd. and Persistent Systems Pte. Ltd.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.