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Business News/ Markets / Mark To Market/  Persistent Systems posts robust Q1 earnings, but analysts remain wary
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Persistent Systems posts robust Q1 earnings, but analysts remain wary

analysts are wary of Persistent Systems' valuations given the steep rally. In the last one year, shares of the company have surged 290%, massively beating the Nifty IT index which rose 77% during the period

Persistent Systems signed deals worth total contract value of $244.8 million in Q1FY22, including $147.7 million in new business TCV. (Photo: Company website)Premium
Persistent Systems signed deals worth total contract value of $244.8 million in Q1FY22, including $147.7 million in new business TCV. (Photo: Company website)

Among the key highlights of IT services provider Persistent Systems Ltd's June quarter earnings were its strong revenue growth and stellar margins.

The company saw dollar revenue growth of 9.2% on a sequential basis, which was 250-300 basis points ahead of analysts' expectations. One basis point is one hundredeth of a percentage point. Adjusted for one-time expense, Ebit margin at 14.1% rose 90bps sequentially despite seasonal visa costs and robust employee additions. Ebit is short for earnings before interest and tax. The one-time expense was on account of impairment of an investment made in a startup.

The company signed deals worth total contract value of $244.8 million in Q1FY22, including $147.7 million in new business TCV. The company added four and 10 new clients to $5 million plus and $1-5 million brackets, respectively, in Q1. Analysts say, continued focus on large deals and an improving win rate should aid the revenue growth trajectory and predictability.

Moreover, the company's management was confident of sustaining revenue growth momentum in the coming quarters. This is on the back of broad-based demand, robust deal intake, and a healthy deal pipeline.

While the company's management was upbeat on growth prospects, analysts are wary of the stock's valuations given the steep rally. In the last one year, shares of the company have surged 290%, massively beating the Nifty IT index which rose 77% during the period.

Analysts at Motilal Oswal Financial Services Ltd point out that the stock trades at 29 times one-year forward price-to-earnings. "This is one of the highest in our midcap IT Services peer group, and factors in a favorable growth and demand environment. Hence, we are downgrading the stock to Neutral (from Buy) as we see limited upside from current levels," said the analysts in a report.

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Published: 26 Jul 2021, 12:27 PM IST
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