Persistent Systems' market cap hits Rs 1 trillion; zooms 101% from June low

Persistent Systems has joined the elite group of companies having a market capitalisation (market cap) of Rs 1 trillion after the stock price of the information technology (IT) company hit a new high of Rs 6,505.70, gaining 3 per cent on the BSE in Thursday’s intra-day trade. The stock has zoomed 101 per cent from its June month low of Rs 3,232.60 after it posted strong earnings, along with guiding for healthy growth going forward.

At 10:16 AM, with Rs 1.01 trillion (Rs 1,01 lakh crore) market cap, Persistent Systems was trading 2 per cent higher at Rs 6,473.05 on the BSE, data from the exchanges showed. In comparison, the BSE Sensex was down 0.02 per cent at 81,506.

Persistent is a global services and solutions company delivering digital engineering and enterprise modernisation to businesses across industries. The company offers a comprehensive suite of services, including AI-enabled software engineering, product development, data and analytics, CX transformation, cloud computing and intelligent automation.

Persistent has maintained its target to achieve revenue of $2 billion by FY27 (implying a compound annual growth rate (CAGR) of 19 per cent). On the margins front, the company remains confident of improving margins by 200-300 bps over 2-3 years on the back of various margin levers such as slower pace of sales and marketing investments, pricing, right shoring and higher proportion of platform-based services, which have higher profitability than normal deals.

The company expects to maintain healthy quarter-on-quarter growth despite seasonality and furloughs in its BFSI and Hi-tech verticals in the third quarter on the back of this strong and broad-based order book and pipeline. It also launched the T100 program (an initiative focussed on scaling the Top 100 accounts) which is centered on four key pillars – talent amplification, value maximisation, AI-driven innovation and ecosystem leadership.

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

Analysts at ICICI Securities believe the company’s dollar revenue will grow at a CAGR of approximately 19 per cent between FY24-27E, compared to a CAGR of 19.8 per cent between FY19-24. The brokerage also bakes in steady margins expansion and expects earnings before interest, tax (EBIT) margins of 14.5 per cent/15.6 per cent/16.6 per cent in FY25E/26E/27E. The stock achieved the brokerage firm’s target price of Rs 6,500 per share.

Meanwhile, Persistent’s Q2 performance was strong on both revenue and margins. Revenue growth was aided by broad-based growth across verticals while margin performance, despite wage hikes, was helped by utilisation improvement and rationalisation of some costs. Deal wins have improved and may help keep revenue growth momentum strong going forward. Q3 may see furlough impact but it is likely to normal furloughs especially in BFSI and HiTech verticals, according to analysts at Elara Capital.

The brokerage firm expects the strong growth momentum to continue, barring quarterly fluctuations. “We build in 17.6 per cent and 18.4 per cent USD and INR revenue growth in FY24-27E, taking the total revenue to USD 1.9 billion in FY27E (against a guidance of USD 2bn),” analysts said. They believe that rationalisation of costs with a strong revenue growth may help the company's operating leverage. “We build in 25 per cent EBIT CAGR over the same period, factoring in 17 per cent EBIT margin in FY27E,” the brokerage firm said.