Persistent Systems shares plunge 4% as JPMorgan sees stock at Rs 4,100

Shares of Persistent Systems tanked 4 per cent in Wednesday's trade after foreign brokerage JPMorgan  downgraded the stock rating to 'Underperform' from 'Neutral' with a revised target of Rs 4,100 level. JPMorgan had a target of Rs 4,200 on the stock earlier. The fresh downgrade came amid concerns over discretionary spends, as Persistent Systems' exposure stays as high as 83 per cent compared with 40-75 per cent for peers.

"Persistent Systems' global peer EPAM recently cut its revenue guidance from +3 per cent growth in CY23 to - 2 per cent, led by cuts in discretionary digital engineering spends by clients that we believe will impact PSYS as well. PSYS has the highest exposure to discretionary spends at 83 per cent vs Indian IT peers at 40-75 per cent. We have rolled forward to Mar’24 but cut our target multiple to 24 times (from 25 times), which drove our PT down to Rs 4,100 from Rs 4,200," JPMorgan said.

JPMorgan said the stock's valuation are expensive given slowing growth in a challenging macro that also limits potential margin expansion. The brokerage has cut its earnings estimates by 3-4 per cent over FY24-26 amid expectations on 2 per cent drop in revenues.

Following the development, the stock fell 3.57 per cent to hit a low of Rs 4,860.05 on BSE. JPMorgan's target suggests a 16 per cent downside over this price.

To recall, JPMorgan had in April initiated coverage on KPIT Technologies stock with an 'underweight' rating and a 12-month target of Rs 520 that suggested a potential 43.78 per cent downside over the then prevailing price. The foreign brokerage had said KPIT Tech would require to win large orders every year if it has to maintain its growth above 20 per cent in the years to come.

JPMorgan had noted that the key derating catalysts for KPIT was slowing growth beyond FY24 to less than 20 per cent, with reverse DCF ask rate of 24 per cent for the next 10 years. It also cited scarcity premium going away with the announced IPO of Tata Technologies that generates 88 per cent of revenues from auto segment.

Watch: Forbes Global 2000 list for 2023: Mukesh Ambani-led RIL tops India Inc, Gautam Adani's firms make the cut, LIC’s debut

Also Watch: Hyundai Creta, Kia Seltos, Tata Nexon, and other best SUVs under Rs 15 lakh