Persistent Systems shares tumble 23% in two months; Is is a time to buy

Shares of Persistent Systems Ltd took a sharp hit, falling around 10 per cent, during the trading session on Monday after the company reported its earnings for the quarter and financial year ending on March 31, 2024. However, the sharp decline in the stock price has left analysts mixed on the stock.

Brokerage firms are divided on the counter as if an investor should buy the stock after a sharp fall or is there more pain left in the counter. However, analysts have unanimously cut the EPS estimates after management's cautious commentary and revised their target prices southwards. Though some continue to maintain their positive stance after upbeat Q4 earnings.

Persistent Systems reported a 14.9 per cent growth on  year-on-year (YoY) basis in its consolidated revenue at Rs 2,590 crore. The midcap IT player's net profit for the quarter increased 25.4 per cent YoY to Rs 315.32 crore, said the company in an exchange filing with the bourses on Sunday.

Persistent Q4FY24 revenue beat estimates and EBIT margin came in 14.5 per cent were flat QoQ, in line with estimate. PAT too was in-line. TCV moderated $447.7 million, up 6 per cent YoY. Management remains confident of delivering industry-leading growth in FY25E, said Nuvama Institutional Equities.

They maintained the margin guidance of 200–300bp expansion over the next three years, but guided for flat FY25 margins owing to investments and deal ramp-ups. We remain confident of Persistent's growth while lowering our short-term margin expectations, said Nuvama, cutting its EPS estimates for FY25 and FY26. It also slashed its target price to Rs 4,150 from Rs 4,500 earlier.

In the March 2024 quarter, the company recorded a total contract value (TCV) of $447.7 million, a slight decrease from the previous quarter's $475 million, which was its highest-ever deal win. The Ebit margin remained flat at 14.5 per cent quarter-on-quarter.

Sharekhan believes that Persistent reported r in line numbers, led by growth in Healthcare and BFSI. "The 10 per cent correction in the stock post Q4 numbers makes risk reward favourable. We maintain Buy on the stock with a revised target price of Rs 4,150," it added.

Shares of Persistent Systems have dropped about 23 per cent from its 52-week high at Rs 4,489.93, on February 19, 2024, about two months ago. The stock is down 6 per cent in the year 2024 so far.

Management expects to maintain top quartile 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 Hi-tech sector. The Healthcare sector is broken into pharma/biopharma, scientific instruments, medical devices, payer and providers, said Choice Broking.

Persistent is committed to proactively staying closer to their clients and aiding them in prioritizing their technology spend towards cost optimization and transformation. They are cognizant of the need to drive operational efficiency to continue its growth journey in future and march towards the goal of expanding its margins, it said with a 'buy' rating a target price of Rs 3,970.

Shares of Persistent Systems tumbled close to 10 per cent during the trading session on Monday to settle at Rs 3510.60. The scrip dropped more than a per cent to Rs 3,470, on Tuesday and commanded a total market capitalization of less than Rs 54,000 crore.

Persistent Systems reported another strong quarter. Management remains confident of achieving industry-leading growth but has toned down the near term margin outlook and guided to maintain the FY25 margin at the same level as FY24. The medium-term target is to improve the margin by 200 to 300 bps over the next three years, said Antique Stock Broking.

"We continue to expect Persistent revenue growth to be industry-leading in FY25/ 26E, driven by market share gains and a strong deal pipeline," it said cutting its EPS estimates EPS as management outlook on margins has turned a bit cautious in the near term. Antique has maintained a 'hold' rating and trimmed its target price of Rs 3,900 from Rs 3,950 earlier.

Kotak Institutional Equities said that Persistent reported another healthy quarter of growth. However, it believes that the company had little to show for margin improvement. Prioritization of investments in sales, capability and large deals will slow down the margin improvement trajectory.

"We cut the FY2025-26E EBIT margin by 80-100 bps, leading to a 6- 8 per cent cut in FY2025-26E EPS. Moderation of deal wins, persistence of tough macro and lack of broad-based growth indicate lack of significant growth acceleration in FY2025," it said retaining 'reduce' rating on the stock with a fair value of Rs 3,450, valuing the stock at 31 times June 2026E EPS.