Persistent Systems

Persistent Systems crossed the $500 mn mark for the first time in FY20. The company reported a topline of Rs. 3,565 cr with an EBITDA of Rs. 493 cr and an EBITDA Margin of 13.8% in FY20. PAT came in at Rs. 340 cr down by 3.2% compared to Rs. 351 cr in FY19. For the quarter ended Q4 FY20, Persistent Systems reported revenue of $127 mn down 1.8% Q-o-Q mainly on account of decline in IP-Led revenue. The company reported EBITDA margins and PAT margins at 13.8% and 9.0% in Q4 FY20. PAT came in lower at Rs. 83.8 cr mainly on account of lower foreign exchange gains. Even though IP-Led business continues to be a drag on the revenue, it will be more than offset by the strong performance in digital segment in the coming quarters. We expect Persistent System to continue with its robust performance going forward owing to management’s focus on annuity deals, cost rationalization measures and less reliance on top clients. As most of the industries Persistent System serves to have minimal impact of Covid-19 we believe the current valuations factor in the Covid-19 risk. We assign a BUY rating to the stock with a target price of Rs. 696 achievable in 18 – 24 month period valuing it at 14x FY23E PAT of Rs. 380 cr