Persistent Systems Q4 Results Review - Inline; Resilient Outlook To Aid Growth: Axis Securities

Axis Securities Report

In Q4 FY24, Persistent Systems Ltd. reported revenue of Rs 2,590 crore, up 3.4% QoQ and 3.0% QoQ (in constant currency terms). Reported revenue stood in line with our expectations.

The company reported operating profits of Rs 454 crore, posting a growth of 2.8% on a QoQ basis. Much in line with our expectations, the company’s operating margins decline marginally by 20 bps to 17.5%. The company’s net profit for Q4 FY24 stood at Rs 315.3 crore, registering a growth of 10.2% QoQ.

Outlook

From a long-term perspective, we believe Persistent is well-placed for encouraging growth, given its multiple long-term contracts with the world’s leading brands. Its improved revenue visibility gives us confidence in its business growth moving forward.

However, rising concerns over the prospects of large economies along with prevailing supply-side constraints pose uncertainties over the company’s short-term growth rates.

Valuation & Recommendation

We assign a 35 times price/earnings multiple to its FY26E earnings of Rs 125.8/share to arrive at a target price of Rs 4,350/share, implying an upside of 24% from the current market price. Hence, we recommend a Buy rating on the stock.

Key risks to our estimates and target price

• The demand environment is uncertain because of the potential threat of the recession from the world’s largest economies.

• The rising subcontracting cost and cross-currency headwinds may impact the company’s operating margins negatively.

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