Persistent Systems (PSYS IN) continued its industry-best growth momentum with >9% CQGR over the past four quarters, with ~8% organic CQGR (6.8% in Q4). PSYS' strong organic growth offset the impact of contract restructuring within the IP segment in Q4. Despite attrition being 10pp above historical levels and wage inflationary environment, PSYS' core metrics point to continued momentum - large client mining (USD 5mn+ >40% higher over the past year), healthy operating metrics (FY22 OCF/EBITDA ~90% above 5Y average), strong deal bookings (USD 1.2bn TCV over the past year including USD 650mn net new TCV) and hiring momentum (36% increase in headcount growth in FY22). PSYS has nearly doubled its profit, 2.5x its OCF and 75% increase in headcount over the past two years (FY20-22). PSYS' profit is expected to rise by over 60% over FY22-24E, with revenue to comfortably cross the USD 1bn threshold in FY23E, translating into a larger participation (complimented by larger deals and supported by recent acquisition). Maintain our high conviction BUY with a TP of INR 5,855, valuing PSYS at 40x FY24E EPS led by strong product engineering pedigree, improved capabilities (acquisition synergies), and strong metrics - 27% EPS CAGR, >40% RoIC, and >8pp growth premium compared to peer average.
- Q4FY22 highlights: (1) PSYS' revenue came in at USD 217.3mn, +9.1/+42.2% QoQ/YoY (organic growth of +6.8/+36% QoQ/YoY), led by healthy growth in services revenue (+14.6% QoQ) partially offset by a decline in IP-led revenue due to restructuring of contract to services T&M (USD 4mn rev impact). (2) Growth in Q4FY22 was broad-based across verticals, led by BFSI at +9.8% QoQ, followed by healthcare & life-sciences at +9.1% QoQ and technology & emerging at +8.7% QoQ (supported by DataGlove). (3) Revenue from the top account declined by -12.7% QoQ (impacted by IP deal restructuring), contributing 14% of the total, while revenue from top 6 to 10 grew by +17.7% QoQ and >USD 5mn client bucket increasing to 25. (4) EBITM stood at 14%, flat QoQ, supported by lower travel and sub-con cost. (5) PSYS posted TCV growth of +8% at USD 361mn, which included net-new TCV wins of USD 195mn (+23.8% QoQ). (6) PSYS added headcount of 1,610 in Q4FY22 (vs. 1,110 in Q3FY22) and attrition declined by 30bps QoQ to 26.6%.
- Outlook: We have factored in USD revenue growth at +33.0/20.1% and EBIT margin at 13.5/14.2% for FY23/24E, resulting in FY22-24E EPS CAGR at 27%. At CMP, PSYS is trading at a PE of 37.9/29.4x FY23/24E.
Shares of Persistent Systems Limited was last trading in BSE at Rs. 4312.65 as compared to the previous close of Rs. 4311.30. The total number of shares traded during the day was 21462 in over 4512 trades.
The stock hit an intraday high of Rs. 4390.00 and intraday low of 4282.65. The net turnover during the day was Rs. 93163872.00. |
