IT stock declares highest ever dividend of ₹28 per share, buy post Q3 results?

Market


With a market valuation of 33,044.26 Cr, Persistent Systems is a large-cap IT company. IT business Persistent Systems stated that its board also approved the payment of an interim dividend of 28 per share for the financial year 2022–23. This is the highest-ever dividend that the company has declared to date since its listing on 06-04-2010. Friday, January 27, 2023 has been fixed as the record date for the purpose of dividend, and it will be paid to the Members by Monday, February 6, 2023.

Persistent System reported a 34.9% YoY growth in consolidated profit after tax (PAT) or net profit of 237.95 crore for the December 2022 quarter compared to a net profit of 176.40 crore in the year-ago period. The consolidated revenue of Persistent Systems grew by 45.4% YoY to 2,169.3 crore in Q3FY23 from 1491.7 crore in Q3FY22. The company reported an EBITDA of 401.55 Cr in Q3FY23 compared to 251.08 Cr reported in Q3FY22, representing a YoY growth of 59.92%. The company recorded an EPS of 31.90 per share in Q3FY23 compared to 23.08 recorded in Q3FY22, representing a YoY growth of 38.2%.

Post decent Q3 earnings of Persistent System, the research analysts of the broking firm Anand Rathi said “Persistent clocked strong growth in Q3 (up 3% q/q, 22% y/y org. est.), despite more furloughs and weakness in a few top accounts. Q3 is seasonally strong for IP revenues, registering 9% growth q/q, 7% y/y, improving its trajectory for the third consecutive quarter. TCV was a strong $440m, up 32% y/y, and net new TCV was up 52% y/y, showing no signs of slowdown. Ahead, the company intends to maintain its growth trajectory, with leeway in terms of receivable days. The EBIT margin rose 78bps q/q, 140bps y/y, reflecting SG&A leverage. Tailwinds would continue on supplyside pressures easing. We raise our FY24e/FY25e PAT ~2.5%, and target to Rs.4,840 (25x FY25) earlier Rs4,410.”

The research analysts of Emkay Global Financial Services Limited said “PSYS reported better-than-expected operating performance in Q3. Revenue grew 3.4% QoQ, despite impact of the higher-than-usual furloughs (150bps), lesser working days (50-100bps) and weakness in select clients. Management expects furloughs to extend into the next quarter and impact revenue growth by 50-75bps in Q4. Revenue growth was broad-based across Software, Hi-tech & Emerging industries (4.1% QoQ; ex-top client: 7.7%), Healthcare & Lifesciences (2.9%), and BFSI (2.8%). The services business has posted 9.2% CQGR in the last eight quarters, and Management remains confident (albeit watchful of macro uncertainties) about sustaining the growth momentum on the back of continued demand, robust deal intake (USD440mn in Q3; 1.7x book-to-bill), healthy deal pipeline, new logo additions, and steady progress in client mining. Management expects EBITM to expand by 200-300bps over the next 2-3 years, ahead of our expectations, on the back of revenue growth, flattening pyramid, SG&A leverage with progress on client mining, and large deals traction. We raise our EPS by 1%-8% for FY23E-25E, factoring-in the Q3 performance and higher margin assumptions. We retain BUY with TP of Rs4,500/share at 25x Dec-24E EPS (earlier Rs4,125).”

The research analysts of ICICI Securities said “Persistent’s share price has grown by ~5.5x over the past five years (from ~ 770 in January 2018 to ~ 4,258 levels in January 2023). We maintain our BUY rating on the stock. We value Persistent at 4,920 i.e. 26x P/E on FY25E.”

The research analysts of Sharekhan said “Despite strong bookings and sustained acceleration in deal wins, the near-term outlook for FY2024E looks uncertain due to persisting global headwinds with gradual recovery coming in the next few quarters. However, we believe the structural growth story for the Indian IT sector is intact and hence we maintain a Buy on Persistent Systems with revised PT of 5010 (to reflect the rollover of target multiple to FY25E EPS). At CMP, the stock trades at 32.9x/28.5x and 25.5x its FY23E/FY24E and FY25E EPS, respectively.”

The research analysts of HDFC Securities said “Persistent Systems (PSYS) posted an in-line revenue and a slightly better operating performance. Key positives include (1) deal bookings, which were at an all-time high—both renewals and net-new TCV, which provides adequate growth visibility (9MFY23 net-new ACV ~55% of revenue-rate) and positive commentary on Q4 order bookings; (2) focus on larger deals with annuity and progress in client mining, reflected in USD 5mn+ client count increasing from 30 in Q2 to 34 in Q3 and continued increase in revenue per account (up 50% since pre-covid); and (3) recovery expected in T2 accounts, which has been a growth headwind in recent quarters (T50 accounts ex-T2 grew ~8% QoQ). PSYS attaining its margin aspiration of 200-300bps increase in 2-3 years is an upside risk to our estimates. Maintain BUY on PSYS (top pick in mid-tier IT) with a TP of INR 5,230, valued at 32x Sep-24E EPS. Valuation drivers (currently at 28.5x FY24E) include industry-leading 25% EPS CAGR over FY22-25E, ~50% RoIC and improving FCF and payout.”

On the NSE, the shares of Persistent Systems Limited closed on Friday at 4,311 apiece level, up by 1.24% from the previous close of 4,258.15. The stock recorded a total volume of 738,210 shares compared to the 20-Day average volume of 397,656 shares.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.


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