Persistent Systems, Coforge, Zensar Technologies: Share price targets post Q3 results

Three IT firms namely Persistent Systems Ltd, Coforge Ltd and Zensar Technologies Ltd recently reported their December quarter results. Persistent Systems delivered a revenue of $300 million, which was in line with estimates; it's deal wins were at a record high of $521 million and that margin at 17.7 per cent beat estimates. In the case of Coforge, revenue growth of 1.8 per cent sequentially in constant currency terms were above estimates. The revenue growth was driven by BFS as the other two verticals TTH and Insurance were weak. Zensar's results were weak as revenue declined 3.2 per cent sequentially in CC terms due to continued pressure in hi-tech vertical and higher furloughs. That said, the de-growth was less than analyst estimates.

Persistent Systems target prices

In the case of Persistent Systems, Motilal Oswal said the IT firm has maintained its growth momentum with sharp execution on margins during the quarter, even as its peers have struggled to deliver positive growth and outlook.

'The deal TCVs were strong in 3Q and Persistent Systems is building a strong foundation for growth in FY25/FY26. The company’s strong performance in recent years, healthy order book, and strong deal pipeline indicate an encouraging demand trend. The stock is currently trading at 36 times FY26E EPS. Our target of Rs 8,110 is based on 37 times FY26E EPS. We reiterate our Neutral rating as we believe the positives have already been captured and the stock offers limited upside from its current levels," it said.

Arihant Capital Markets said Persistent Systems delivered robust financial results in Q3FY24, driven by impressive performance across its diverse segments. The company reiterated its EBIT margin improvement guidance of 200-300 bps in the next 2-3 years.

A focus on improving the onsite against offshore mix, decrease in SG&A would aid in margin improvement, Arihant said.

"Due to the strong Q3 performance and emerging green shoots in demand and signs of pent-up demand in specific verticals, our growth estimates for FY23-FY26E stands at 15.8 per cent CAGR in dollar terms and margin at 14.4 per cent/16.5 per cent/16.8 per cent for FY24E/FY25E/FY26E. We value the Persistent Systems at a PE of 40 times to its FY26E EPS of Rs 219.60, which yields a target price of Rs 8,785 per share. We upgrade our rating to Hold from Reduce earlier," Arihant said.

Nuvama said it remains positive on Persistent Systems and expect it to outperform peers, given its strong positioning in the digital transformational space, significant margin levers, and the sweet spot that it is in ($1 billion revenue range). Valuation at 35 times FY26E PE might appear expensive, but is justified in our opinion given the company’s strong growth profile, it said while suggesting a target of Rs 9,050 on the stock.

Coforge stock price targets

In the case of Coforge, Choice Broking said despite very high furloughs, the BFS vertical grew 3.1 per cent QoQ in CC terms, accounting for 32.2 per cent of the revenue mix. The insurance vertical was flat in CC terms, contributing 22.6 per cent to the revenue mix.

The management is confident of achieving its lower end of guidance of 13-16 per cent CC revenue growth for FY24E backed by high order intake during the quarter. We maintain our rating to ADD and arrive at a revised target price of Rs 6,895 implying a P/E of 34x (modified) on SeptFY26E EPS of Rs 203," it said.

Nuvama said it remained positive on Coforge and expects it to outperform peers, given its strong revenue growth, favourable revenue mix, aggressive management, and high predictability of earnings.

"Valuations, at 26 times FY25 PE, while appearing to be expensive, continue to be at a discount to Persistent and are justified by strong earnings growth," it said.

Motilal Oswal Securities said that the retaining of FY24 guidance by Coforge implies a strong Q4 exit. It expects large deal ramp-ups and healthy funnel to supporting growth despite the near-term challenges. That said, this brokerage believes that the robust outlook is already factored into the price and, thus, does not see any potential upside from here on. It has a target of Rs 6,600 on Coforge.

Zensar Technologies share price targets

In the case of Zensar, while delivering decent margins, the IT firm continues to struggle on revenue growth despite strong deal wins. "We are upgrading our FY23E/FY24E/FY25E EPS by 4.8 per cent/4.6 per cent/2.9 per cent due to better-than-expected margins. Retain ‘HOLD’ with revised target of Rs 610 from Rs 590 earlier) at 20 times FY26E P/E," Nuvama said.

The brokerage said Zensar continued to surprise positively on margins, driven by internal operating efficiencies measures but it believes margin has limited scope to improve further. It sees Hi-Tech and top-five client to continue to drag the overall revenue growth for Zensar.

Motilal Oswal said the weakening global environment and worsening economic conditions in key economies are making the growth recovery difficult for the company in the near to medium term. The stock, it said, is trading at 20 times (FY26E), in line with its small-cap peers.

"We believe Zensar's growth story is already factored into the price and it is trading at full valuation, leaving limited upside potential from its current level. Maintain Neutral," the brokerage said.

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