Think Of Us As Disruptors, Says Persistent CEO Sandeep Kalra

Shares of Persistent Systems Ltd. have outperformed its larger peers and the information technology benchmark so far this year. Analysts from at least two brokerages say it remains a good bet.

IIFL and JM Financial cited improved revenue visibility, a steady margin expansion, and relatively attractive valuations for their optimism. That comes when the stock has returned 65.3% gains year to date, compared to a rise of 10.4% for Nifty and 8.5% for BSE S&P Sensex.

Yet, clients face supply-side issues, the second Covid-19 wave has disrupted economic activity and wage hikes could put pressure on margins. But Sandeep Kalra, chief executive officer at Persistent Systems, cited the performance in the pandemic-ravaged 2020-21 to underscore that there’s enough demand.

"We grew every quarter in FY21. From that, people should know that the services that we provide are relevant and will continue to be for the next few years,” he said. “There is a tailwind we are carrying with us, and the 20% growth in dollar terms in the last quarter should give people a directional view.”

The core is product engineering and the company is focusing on larger, multi-year deals, which provides growth predictability over years, he said.

With mid-sized IT companies gaining scale, Persistent now vies for $100 million deals and the ticket size is growing, according to Kalra.

“Persistent is a disruptor… In a T20 game, there will be ones, twos and threes that are required. But you will need fours and sixes to win the match as well,” he said. “So more and more, we're invited to hit the fours and sixes, and hopefully that will be the trajectory going ahead."

Persistent's headcount rose nearly 29% in FY21 against revenue growth of 13%. This aggressive hiring is to execute the deals it won in the second half of the last fiscal. The deal backlog would have required the kind of hiring that the company has done, he said.

The company is also actively pursuing merger and acquisitions to reach its target of $1-billion valuation in the next three to four years, he said.

Brokerage View

IIFL

• Target price is Rs 2,550, suggesting hardly any upside from current levels.
• Street is under-appreciating the company’s ability to deliver consistent top quartile growth, given its track record.
• The combination of improved revenue visibility, steady margin expansion and relatively attractive valuations make it a compelling story.

JM Financial

• Recent deal wins across banking, financial services and insurance expected to support growth into FY22.
• Alliance business, till now a drag, is expected to see growth in FY22 led by large deal wins in the services segment.
• Company confident about FY22 growth (3-4.5% QoQ over the medium term) and is optimistic that it can defend/improve margins despite the likely industry-wide wage pressures in FY22.
• Raised its FY22/23 earnings per share target, already significantly above the consensus, by 1/5% to Rs 80/103.
• Persistent remains its tops pick among mid-cap IT companies.

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