Persistent Systems share price rallies 10% on strong September qtr results

Persistent Systems share price rallied 9.9 per cent to Rs 5,672 on the BSE in Wednesday's intraday trade after the company reported a strong set of earnings for the July-September quarter (Q2) of financial 2024-25 (FY25). Persistent Systems' share price on the NSE, also, surged 9.9 per cent to a high of Rs 5,674 per share.

Persistent System's consolidated net profit grew 23.44 per cent to Rs 324.90 crore in the September quarter (Q2FY25). The company's profit stood at Rs 263.2 crore in the year-ago period (Q2FY24).

At 09:57 AM, the stock of the information technology (IT) company was up 7.9 per cent at Rs 5,580, as compared to 0.25 per cent rise in the BSE Sensex. The stock had hit a 52-week high of Rs 5,692.95 on October 15, 2024.

Persistent Systems reported dollar revenue at $345.5 million, up 5.3 per cent quarter-on-quarter (Q-o-Q) and 18.4 per cent year-on-year (Y-o-Y). In constant currency (CC) terms, revenue was up 5.1 per cent sequentially.

In absolute terms, it reported earnings before interest tax (Ebit) of Rs 406.2 crore, up 5.8 per cent Q-o-Q/ 28.8 per cent Y-o-Y while Ebit margins remained stable at 14 per cent, flat Q-o-Q, but up 30 basis points (bps) Y-o-Y.

The company aims to achieve $2-billion revenue by FY27, implying a 19 per cent compounded annual growth rate (CAGR) over FY24-FY27.

On the AI front, the company developed a robust strategy focused on two key areas: AI for technology and AI for business. It plans to integrate AI across all verticals. Besides, it has launched platforms like SASVA and iAura, with rapid adoption seen in its GenAI Hub across industries.

They expect the weakness in the TMT vertical to bottom out, forecasting strong growth ahead.

"Right-shoring, pricing and growth momentum will continue to help in maintaining and improving the margins as management is confident of margin expansion of 200-300 bps over the next 2-3 years, albeit high utilisation and sub con optimisation benefits are likely to be limited, in our view: ICICI Securities said.

Motilal Oswal Financial Services, on the other hand, has reiterated its 'Buy' rating on the stock with a target price of Rs 6,300.

The brokerage firm projects a 19-per cent US dollar revenue CAGR over FY24-27E for Persistent Systems, which, combined with margin expansion, could result in over 21 per cent EPS CAGR.

"This positions the company in a league of its own as a diversified product engineering and IT services player, justifying a premium valuation multiple. The stock is currently trading at an admittedly expensive valuation. That said, owing to its superior earnings growth trajectory, on a PEG basis, we believe the valuation still has room for upside," the brokerage firm said.