Emkay Global Financial Advises Reducing Persistent Systems Stock, Sets Rs 3700 Target

Emkay Global Financial issued a reduce rating for Persistent Systems, setting a target price of Rs 3700 per share in its latest research report dated April 22, 2024. The brokerage’s assessment follows mixed financial results for the company’s fourth quarter performance.

Persistent Systems reported a 3.4 percent quarter-on-quarter revenue increase on a constant currency basis, which aligned closely with Emkay’s estimates. However, the company’s earnings margin fell short of expectations, remaining flat at 14.5 percent compared to the previous quarter. This margin performance disappointed analysts as it did not show an improvement despite revenue growth.

Revenue expansion was largely concentrated within the healthcare and life sciences (HLS) sector, which contributed approximately 94 percent of the incremental revenue sequentially. This indicates a heavy reliance on one segment for growth, raising concerns about diversification and stability. Persistent’s top client experienced a planned reduction in business for the second quarter in a row, which impacted overall growth. Offsetting this, other major clients displayed healthy growth, providing some balance to the revenue mix.

In terms of business development, Persistent Systems recorded total contract value (TCV) wins amounting to USD 447.7 million during the quarter. The book-to-bill ratio stood at 1.4 times, reflecting moderate deal intake. Year-over-year, quarterly TCV grew by 6 percent, while the total trailing twelve months (TTM) TCV increased by 12.6 percent. However, Emkay noted a deceleration in deal wins compared to earlier periods, suggesting a cautious outlook on future contract acquisitions.

Despite the current global economic challenges, Persistent Systems’ management expressed confidence in achieving top-quartile revenue growth in fiscal year 2025, while aiming to maintain earnings before interest and tax margin (EBITM) at fiscal year 2024 levels. The company restated its medium-term objective to enhance EBITM by 200 to 300 basis points over the next three years. This target, however, has been pushed back by a year, indicating slower progress than anticipated.

Emkay Global Financial views the pace of margin improvement as disappointing, which contributed to a downward revision of earnings per share (EPS) forecasts by 5 to 6 percent for fiscal years 2025 and 2026. The brokerage also pointed out that Persistent Systems’ valuation remains high even after a nearly 10 percent share price correction following the Q4 results.

Given these factors, Emkay maintains a reduce rating on Persistent Systems, emphasizing cautious investor sentiment. The target price of Rs 3700 is based on a price-to-earnings multiple of 34 times estimated March 2025 EPS.

Persistent Systems operates in the information technology sector, providing software development and technology services across industries such as healthcare, financial services, and communications. The company’s performance is often seen as a barometer for technology outsourcing trends and digital transformation demand.

The broader IT services market has faced headwinds from macroeconomic uncertainties and fluctuating client spending patterns. Companies like Persistent Systems must balance growth ambitions with margin discipline amid evolving customer priorities and competitive pressures.

Investors should consider these dynamics alongside Emkay’s analysis when evaluating Persistent Systems’ stock. The brokerage’s recommendation reflects current challenges and cautious optimism about future profitability improvements.