Persistent Systems is an Indian multinational technology services company which was incorporated on 16 May 1990 in Pune, Maharashtra. Persistent Systems provides software engineering and strategy services to help companies implement and modernize their businesses. It has its own software and frameworks with pre-built integration and acceleration. It also has partnership with providers such as Salesforce and AWS.
Persistent Systems had a very consistent growth during the COVID pandemic and macro volatility. Strong growth in revenue, better margins, regular order flows, decreasing supply-side concerns, pertinent expertise in revenue maximization, and the cost rationalisation projects have given the company a strong position. However, problems arising out of budget rationalisation due to macro concerns and the short-term weakness due to a difficult season for the IT industry in Q3 shows that the stock is still overbought and may have a deeper correction.
Persistent has seen extraordinary growth in the past two years with an outstanding revenue growth of 23 percent in the TTM compared to the last fiscal year. The company has a strong momentum with a 52% growth in revenue in Q1 compared to the last year quarter and 51% growth in revenue in Q2 compared to the last year quarter.
The company has seen growth in a broad spectrum, with all the three major industry verticals which are the BFSI (banking financial Services & Insurance), healthcare life sciences, and technology, which have been putting out great performance. The leading market of North America (80 percent of revenue) is performing good. The decline in top clients was a not a major blow due to the change in the clients’ priorities. The firm has taken a strong addition of large clients and sturdy growth across revenues.
The company has secured its growth outlook through five notable acquisitions worth $225 million through a combination of upfront and deferred payments. This would help the company vitalize their vertical services via industry-specific cloud solutions in financial, healthcare, or any other domain.
IT companies are vigilant regarding macro headwinds. For Persistent has not suffered on order acquisitions, however Q3 could be weak due to holidays and furloughs. Persistent operates in the very high growth areas of the IT sector — Digital, Software Platform Engineering, Design-led Transformation, Data, AI, Cloud-enabled Enterprise Modernisation, and IoT. These should gather momentum after the short-term blip.
The company’s attrition rate has declined to 23.7 percent from 24.8 percent in the last quarter. The company has added about 3000 freshers in the first half and has almost completed the fresher-hiring target for the year.
The company has achieved an annualized turnover run-rate of $1 billion in Q2 and is now eyeing $2 billion in the next 4-5 years. While the fear of recession in the company’s major markets could be a hindrance, it will not change its long-term technology spending. In the short term, the company has plenty of expertise in cost takeout projects which are being prioritized. Most of the industries that Persistent serves has not seen any spending cut and the company has negligible presence in loans.
The stock is highly overbought and expensive as the price has overextended above the 200-day moving average. MFI is at 74 points which confirms that the stock is hugely overbought. The stock received strong support at the 38.2% retracement level which could be a good spot to accumulate this stock. However, considering the weakness in IT industry due to seasonality, we may see a correction in this stock if other major IT stocks plummet. Hence this stock is great for the long term, but do not rush in to acquire this stock unless you see some corrections. Timing your entry on this IT stock is crucial.
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