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Persistent Systems had a strong Q3 with 6.7% sequential organic growth. The EBITDA margins were flattish and Data Glove acquisition should be accretive for the company at this level, as per brokerage house Anand Rathi. The multibagger stock has given return of over 122% in a year whereas it is down about 18% in 2022 (year-to-date or YTD) so far.

“FCF deteriorated in FY22, and is likely to improve ahead but only gradually, given payouts. We move the rating to a Hold on the strong price performance," the note stated. The brokerage has a target price of 4,640 apiece on Persistent Systems shares.

“Persistent continues to deliver strong growth, driven by volumes as onsite billing rates have been a little soft (delivered more work nearshore than on-shore and Europe was soft). The company now adds Data Glove which will help it gain meaningful presence in the Microsoft ecosystem (for enterprise applications, not for Microsoft)," the brokerage note stated.

Deal sizes are currently small but in Persistent’s sweet spot. The company expects to scale up this technology practice meaningfully in addition to Salesforce and IBM, it added.

Persistent Systems delivered Earnings before interest and taxes (EBIT) margins of 14% in Q3FY22 and in 9MFY22. With the Data Glove acquisition, it expects margins to face a 75 bps headwind initially although at the EBITDA level there is no dilution. With gradual recovery, brokerage house Anand Rathi expects FY23 margins to be 14% as operating leverage plays out.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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