Accumulate Persistent Systems; target of Rs 6550: Prabhudas Lilladher

Prabhudas Lilladher's research report on Persistent Systems PSYS reported revenue growth of 7.8% QoQ CC (vs. our estimate of 7.6%), aided by healthy growth within BFS and Hi-Tech verticals, attributed to a ramp-up of the large deal (USD650m). Healthcare growth was weak on account of underlying macro challenges in US payer segment. The weakness in deal TCV/ACV (+4.0%/+7.4% YoY) was a little disappointing, primary attributed to a slower decision-making and deferred deal closure, which is likely to get recovered in Q3. Otherwise TTM TCV/ACV reported a growth of 36.3%/22.0% YoY. EBIT margin of 15.0% missed our estimate by 60 bps QoQ, primarily due to wage hike impact (140bps QoQ) and incremental investments in licensing and software tools (+32% QoQ). The management was confident of achieving 16-17% EBIT margin for FY27E. With the compensation revision behind and the large deal (USD650m) achieving its full potential in Q3, the operating leverage should kick in to support margin improvement in H2. We are keeping our CC revenue growth estimates largely unchanged, while revising our EBIT margin downward to 16.0% in FY27E (earlier 16.3%). The underlying fundamentals remain strong while the valuations have stretched over the past few sessions. Outlook Hence, downgrading PSYS to ACCUMULATE (BUY earlier). We assign 32x to Sep'28E EPS to arrive at a TP of INR 6,550. For all recommendations report, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. Persistent Systems - 1610026 - prabhu