Add Persistent Systems ltd For Target Rs.5,200 By Emkay Global Financial Services Ltd
PSYS saw a tad softer-than-expected operating performance in Q4. Revenue growth of 3.4% QoQ CC was slightly lower than our estimate. EBITM declined by 40bps QoQ to 16.3%, below our estimate of 16.6%. Deal wins were healthy at USD600.8mn, with book-to-bill at 1.4x; new deal wins stood at USD408.9mn. TCV/ACV grew 14.4%/21.6% YoY on TTM basis, reflecting strong deal momentum and supporting revenue visibility. It expects the pace of AI adoption to accelerate significantly in tech companies and enterprises, with tech players leading the way. The management remains constructive on demand, supported by strong traction in BFSI/Healthcare, rising AI-led transformation programs, and increasing opportunities in cost optimization in the PE channel; this reinforces confidence in the medium-term growth trajectory. It reaffirmed its aspiration to clock revenue run-rate of USD2bn by FY27-end. The mgmt aspires to sustain EBITM at the 16-17% range, though it indicated that revenue growth remains the key priority and that it will not shy away from investing back into business and developing capabilities to sustain growth momentum. We cut FY27/28E EPS by 1.1/0.3%, based on the Q4 performance. We expect the stock to remain soft in the near term due to the Q4 miss and guarded commentary on EBITM. We maintain ADD on PSYS with TP of Rs5,200 at 30x Mar-28E EPS
Results summary
Revenue grew 3.2% QoQ (3.4% CC QoQ) to USD436mn, a tad lower than our expectation of USD437mn. EBITM declined by 40bps QoQ to 16.3% due to higher consulting and advisory expenses (-60bps), subcon expenses, purchase of software licenses, and travel expenses (-70bps), partially offset by operational efficiencies (40bps) and currency benefits (60bps). Headcount grew ~3% QoQ to 27,520. Attrition declined by 50bps to 13% vs 13.5% in Q3. PSYS has declared a final dividend of Rs18/sh (Rs40/sh for FY26). What we like: Broad-based revenue growth, healthy deal wins. What we do not like: Weak cash conversion, softness in Europe.
Balanced growth across all verticals; Europe lags among geographies
Revenue growth was driven by Healthcare and Lifesciences (6.9% QoQ in USD terms; ~55% of incremental revenue QoQ), Software, Hi-Tech and Emerging Industries (2.2%) and BFSI (1.7%). Across geographies, North America (3.1%), India (9.8%), and RoW (3.2%) reported sequential growth, partially offset by the decline in Europe (1.7%).
BFSI remains central to growth agenda
The management highlighted that the growth strategy in BFSI is centered on 3 vectors:
i) developing inroads in the specialized sub-vertical,
ii) doubling down on investment in product engineering, data modernization, and cloud transformation,
iii) sharper focus on top-30 clients and winning new strategic clients for future growth.
It is focusing on 4 areas to help clients realize their business growth:
a) AI-led software engineering,
b) payments and digital assets,
c) data infrastructure,
d) non-linear cost transformation.
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