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Growth momentum continues…

About the stock: Persistent System (Persistent) offers cloud, data, product & design led services to BFSI, Healthcare & Hi Tech verticals

* Persistent has shown a healthy turnaround in dollar revenue growth of 13% YoY in FY21 and margin expansion of 248 bps

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

Q3FY22 Results: Persistent reported robust Q3FY22 results.

* Dollar revenues increased 9.2% QoQ to US$199 million

* EBITDA margins increased 23 bps QoQ to 16.8%

* PAT increased 9.1% QoQ to | 176.4 crore

What should investors do? Persistent’s share price has grown by ~7.5x over the past five years (from ~| 570 in January 2017 to ~| 4,300 levels in January 2022).

* We now assign BUY rating (from HOLD earlier) on continued strong growth

Target Price and Valuation: We value Persistent at | 4,985 i.e. 42x P/E on FY24E

Key triggers for future price performance:

* The company is looking to reach US$1 bn annual revenue in six to eight quarters from now and looking at EBITDA margin expansion of 16-17%, while a further 100-150 bps margin improvement is expected

* Strong deal win momentum will help improve its revenue growth. We expect dollar revenue to grow at 19.7% CAGR in FY21-24E

* Margin expansion of ~170 bps to 18.0% in FY21-24E

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

* Industry leading growth and healthy margins prompt us to be positive on the stock

* BUY with target price of | 8,050

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