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Aiming for industry leading growth; top client recovery likely sustainable…

About the stock: Persistent Systems (Persistent) offers cloud, data, product & design led services to BFSI, healthcare & hi-tech verticals.

           * Persistent had a strong year (FY23) with revenue growth of 35.2% in dollar terms & rupee revenue growth of 46.2%

           * Net debt free and healthy double digit return ratio (with RoCE of 20%)

Q4FY23 Results: Persistent reported steady revenue growth in Q4FY23.

         * Revenue grew 3.5% QoQ in CC terms and 3.8% QoQ dollar terms

         *EBIT margins was flat sequentially at 15.4%

         *Reported TCV was US$421.6 mn, down 4.2% QoQ & 16.8% YoY

What should investors do? Persistent’s share price has grown by ~6.2x over the past five years (from ~| 726 in April 2018 to ~| 4,467 levels in April 2023).

      • We maintain our BUY rating on the stock

Target Price and Valuation: We value Persistent at | 5,170 i.e. 26x P/E on FY25E.

Key triggers for future price performance:

 * The company has achieved US$1 bn revenue in FY23 and is now aiming at US$2 bn annual revenue in the medium term

* Persistent is actively looking for acquisitions to acquire capabilities in the areas of cyber security, consumer tech, generative AI, healthcare & BFSI

* Strong deal win momentum will help improve its revenue growth. We expect dollar revenue to grow at 18.1% CAGR in FY23-25E along with EBIT margin expansion of ~140 bps to 16.3% over FY23-25E

Alternate Stock Idea: Apart from Persistent, in our IT coverage we also like Infosys.

* Key beneficiary of improved digital demand, industry leading revenue growth and healthy capital allocation prompt us to be positive

* BUY with a target price of | 1,600

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