ET Intelligence Group: The stock of Persistent Systems is down 2% since January 20 when the mid-tier software exporter declared the December quarter numbers compared with a modest 1% gain in the BSE Infotech index. The stock’s underperformance owes to its rich valuation amid geopolitical uncertainties. Analysts, however, have raised target prices by around 8% on average citing that the company is on track to achieve the guidance of $2 billion revenue by FY27 compared with $1.6 billion in the trailing 12 months (TTM) to December 2025 given the strong order booking and improving profitability.
The company reported sustained revenue momentum, clocking a sequential growth of over 4% for the second consecutive quarter despite demand uncertainty and holiday season during the December quarter. The healthcare and life sciences segment, which contributes over one-fourth to revenue, was back on growth track after reporting sluggishness in the previous three quarters. It reported 4.8% sequential growth for the third quarter.
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$2B Guidance Analysts raise price targets, citing strong order book and improving profitability
Vinit Teredesai, CFO, stated that the healthcare vertical was in consolidation phase after growing fast over the past few quarters. “Things are improving now with new clients and AI (artificial intelligence) led solutions,” he added. Other verticals including software and hi-tech, and banking and finance continued to report sustained momentum during the third quarter.
The operating margin (Ebit margin) took a hit of 230 basis points sequentially due to changes in the labour code. As a result, margin shrank by 190 basis points to 14.4% from the previous quarter. The company absorbed a one-time impact of extended wages including gratuity and leave encashment during the quarter while the future effect would depend upon the acceptance of other recommendations by various states in India in the coming months.
In the absence of labour code changes, the margin would have expanded by 40 basis points sequentially to 16.7% notwithstanding the salary increase and furloughs during the quarter. Teredesai attributed the margin expansion to higher utilisation, which remained above 88% for the fourth consecutive quarter, lower subcontracting cost, favourable currency movement and process efficiencies attributable to rising use of internally developed AI tools.
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The total contract value of new order bookings increased by 10.7% sequentially to $674.5 million, driven by contract renewals as the TCV of new orders rose at a slower pace of 5.2%. The TTM order booking touched $2,322 million compared with $2,241.6 million in the previous quarter, reflecting sustained deal flow.
“Persistent continued to emphasise its deep domain expertise playbook anchored in its top accounts, which supports near-term growth momentum as well as multi-year wallet-share expansion,” noted Anand Rathi Share and Stock Brokers in a report. The broker has upgraded rating on the stock to BUY from HOLD and raised the target price by 7% to ₹7,587, valuing it at 40.3 times FY28 expected earnings. The stock was last traded at ₹6,190 on Wednesday on the BSE.
