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Persistent Systems delivered healthy Q1FY25 revenues at $328.2mn, up 5.6% sequentially and 16.0% YoY in USD terms led by robust growth in Healthcare and Lifesciences vertical. In INR terms, revenue came at INR27.4bn, up 5.7% sequentially and 17.9% YoY. PAT for the quarter stood at INR3,064mn (+33.9% YoY). The order booking for the quarter was at $462.8mn in TCV and at $337.3mn in ACV terms.

*  Outlook for FY25E: The management expects to maintain healthy growth around similar levels as FY24 amidst the challenging micro environment. Growth to be driven by Healthcare and Life Sciences sector followed by BFSI sector and lastly Hitech sector. Company has been scouting for a suitable M&A target in contact center space as it continues to build internal capabilities. It is embarked on a journey to USD2bn. It has spawned off two company-wide initiatives, one focused on enhancing its service offerings and approach in mining its strategic accounts, and the other one on cost optimization. On the cost optimization and operational efficiency side, it has been benchmarking its policies with respect to industry bestin-class, enabling the right investments to fuel its growth aspirations.

* Secular adoption of GenAI: Strategic investment in AI has two broad vectors, AI for technology and AI for business. The AI for technology vector is all about transforming the way software gets developed. AI for business vector is about transforming enterprises right from business model transformation, operational transformation, data to insights and action, customer experience, and leveraging generative AI. This approach is centered around three foundational pillars spanning across a shift to platform-based services from a human based services approach, making strategic inorganic bets to complement the internal investments and bringing the best of partner ecosystem to its clients leverage. Company has developed a set of IPs and accelerators such as iAURA and GenAI Hub, which enable enterprises to speed up the adoption of GenAI use cases that are enterprise-grade, enterprise safe and enterprise scale. The goal in longer term is to drive increased revenue and profit per employee through the AI adoption journey in the years to come.

*  Margins to remain at similar levels: Operating Margins for the year came at 14.0% (+119bps YoY). Margins are aspired to be in the same range as FY24. It shall work towards improving utilization, on-site/offshore mix, and other operational efficiencies to keep moving towards their medium-term target of improving margins by 200-300bps over the next three years

Valuation:

Persistent is committed to proactively staying closer to their clients and aiding them in prioritizing their technology spend towards cost optimization and transformation. They have pivoted to an AI-led, platform-driven services approach, deepening hyperscalers partnerships and developing a suite of innovative solutions. The stock has rallied significantly during the last month and a similar margin level helps us downgrade our rating to SELL to arrive at a revised target price of INR4,560 implying a PE of 41x on FY26E EPS of INR111

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