Shares of Persistent Systems have turned into a single multibagger stock The IT services provider’s stock for this year so far in 2021 (Y-o-Date) has gained over 163%. Persistent has announced two acquisitions that, according to Anand Rathi, in addition to payment and insurance technical expertise, provide access to a large number of customers in the medium term.
The brokerage firm believes that there will be an impact of 50-75 bps on the margins of the persistent, but it is likely to improve by FY24. Anand Rathi has downgraded his rating on Persistent Systems stock from ‘Hold’ to ‘Buy’ and has revised the target upwards. ₹4,275 (from ₹3290), its evaluation is similar to that of emphasis.
The company acquired North Carolina-based Software Corporation International (SCI)/Fusion360 for $53 million and the assets and business of New Jersey-based Shree Partners/Infosoft for $6.9 million.
“Persistent is establishing itself in the rapidly growing payments and insurtech business through these two acquisitions, enhancing BFSI capabilities, which currently account for 31% of its revenue,” Anand Rathi said in a note.
SCI brings in customers from 10 of the top 20 banks in North America and has ties with IBM (FTM implementation, ~75% revenue) and Microsoft (cloud hosting). The brokerage said the acquisition of Shree Partners brings a larger insurance tech client, strengthens capabilities in cloud, data AI/ML and infrastructure, while consolidating Persistent’s position in a strategic account.
Anand Rathi has increased 5%/3% for FY22e/FY23e. The higher EPS of FY23 is despite margin hit on account of retention pay-out (lump sum, to last till FY25) and higher amortization (normalized with growth).
Given the continued high growth, the brokerage has assumed almost parity with Mphasis and expects it to captivate new clients. However, it sees supply-side challenges as a major risk.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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