Persistent Systems jumps 8% after strong Q3 show; Motilal sees in-line revenue in Q3

Persistent Systems' shares rallied about 8 per cent during the trading session on Thursday after the company reported a strong performance in the December 2022 quarter. The company's earnings were majorly in line to the analysts' estimates, that pushed the stock move higher.

Persistent Systems reported a 35 per cent year-on-year (YoY) rise in the net profit at Rs 237.95 crore, compared to a net profit at Rs 176.4 crore in the same quarter previous year. The midcap IT player reported at total revenue of Rs 2,169.37 crore in Q3FY23, rising 45 per cent from Rs 1,492 crore in Q3FY22.

On a sequential basis, the revenue rose about 6 per cent, whereas net profit increased 8 per cent, the company said. Persistent System's board of directors also declared an interim dividend of Rs 28 per share for the Financial Year 2022-2023, the company said in its exchange filing.

Persistent System's shares rose 8 per cent to Rs 4258.05 on Monday following the announcement of earnings on Wednesday, post market hours. The stock had settled at Rs 3961.50 on Wednesday.

"We will revisit our estimates after the earnings call, commentaries on the near-term outlook, verticals, and IP business will be keenly watched. We maintain our Neutral rating on the stock," said Motilal Oswal in its report, which sees revnue in-line to the expectations and strong contracts value in Q3.

Persistent System, currently commanding a marketcap of more than Rs 32,500 crore, has gained about 30 per cent in the last six months, whereas the stock has delivered 10 per cent returns in the last one month. However, the stock has remained flat in the last one year.

“We are delighted to announce the 11th sequential quarter of revenue growth, fueled by our continued investments in innovative technologies and our differentiated Digital Engineering expertise. In this dynamic macro-economic environment, we are closely collaborating with our clients and partner ecosystem to create competitive advantage and drive business value," said Sandeep Kalra, CEO and Executive Director, Persistent Systems.

Persistent Systems' operating profit (EBITDA) came at Rs 401.56 crore, rising about 60 per cent on a YoY comparison and 9.1 per cent higher on a sequential basis. EBITDA margins stood at 18.5 per cent, the company said in its statement.

The order book for the quarter ended on December 31, 2022, stood at $440.2 million in Total Contract Value (TCV) and at $326.3 million in Annual Contract Value (ACV) terms. Earlier this month,  the company had announced a partnership with Microsoft to accelerate its growth.

Global brokerage Macquarie had given a target price of Rs 8,330 on Persistent Systems, suggesting and upside of 110 per cent from its last close. However, the report was released on January 13, ahead of its quarterly earnings.

"We think this is well deserved, but think that the valuations should reflect the differences in both growth rates and risks to growth. Our preference is for firms with: 1) proven client mining ability; 2) increasing offshore execution; and 3) declining top-client concentration," the brokerage said while picking Persistent Systems and LTIMindtree as its top picks.

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