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Strong show despite soft demand

All-round beat led by superlative Q3 Diverging from soft growth posted by top Indian IT players in a seasonally weak Q3, Persistent Systems (PSYS IN) continued to see an all-round beat on Street/our estimates. Revenues at USD 300.6mn were slightly ahead of both our/Street estimates by 0.4% each. CC revenue growth at 3.1% QoQ was 40bps ahead of our estimates. Growth was led by Medical vertical, with 16.4% QoQ growth, though offset by flat growth from Hi-Tech and a 0.5% drop in BFSI. Geographically, Europe saw a revenue decline by 3.5% though offset by growth in the US (+3.7% QoQ) and India + APAC (+3.9% QoQ). Top account declined ~6% QoQ but was offset by top 2-5 accounts with 6.4% sequential growth. Growth was steady in top-10/top-20 and non-top 20 accounts.

Excellent margin execution in furlough-led Q3 Q3 EBIT margin rose 80bps sequentially to 14.5%, 70bps ahead of our estimate of 13.8% and 30bps ahead of streets estimate. This was due to higher utilization and SG&A optimization. Even in furlough-led Q3, PSYS added 494 employees QoQ. This is in contrast with industry leaders which pared headcount. Thus, demand certainty for PSYS was visible.

Vendor consolidation deals back robust orderbook

Orderbook continues to be robust, propelled by vendor consolidation deals and product engineering services, supporting overall demand for PSYS. Q3 net new ACV of USD 183mn declined 1% QoQ but overall ACV at USD 392mn rose 24% QoQ. This was supported by 59% sequential growth in renewals. Led by strong renewals, TCV too expanded 9% QoQ to USD 521.4mn..

Valuations: Maintain Accumulate;

TP raised to INR 8,300 Even in a seasonally weak Q3, PSYS was able to lead industry growth. This was enabled by better demand and certainty of topline growth for PSYS versus industry’s cautionary demand status. We factor in Q3 performance and roll forward to Dec-25E ending EPS. We raise FY25E/26E EPS 4.5%/ 7%, respectively. Expect USD sales CAGR of 14.4%, an EBIT CAGR of 20% and EPS CAGR of 23% in FY23-26E. We maintain Accumulate with raised TP of INR 8,300 (from INR 6,180), on 36.9x target Dec-2024E earnings (5 years average P/E + 1SD).

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