Cloud Hosting

Persistent Systems shares have turned into a multibagger stock for this year as the IT service provider's stock has surged over 163% in 2021 (year-to-date) so far. Persistent has announced two acquisitions, which as per Anand Rathi, bring larger client access, allowing it to scale up over the medium term, in addition to payments and insurance tech expertise.

The brokerage firm believes that Persistent's margins will take a 50-75 bps impact but will likely recover by FY24. Anand Rathi has moved its rating to Buy from Hold on Persistent Systems stock and has revised target upwards to 4,275 (from 3290), valuing it similar to Mphasis.

The company has acquired the North Carolina-based Software Corporation International (SCI)/Fusion360 for $53 milion, and Assets and Business of the New Jersey-based Shree Partners/Infosoft for $6.9 million.

Persistent is establishing itself in the fastgrowing payments and Insurtech business through these two acquisitions, enhancing BFSI capabilities, which currently make up 31% of its revenues," Anand Rathi said in a note.

SCI brings 10 clients from within the top 20 banks in North America and has relationships with IBM (FTM implementations, ~75% of revenue) and Microsoft (Cloud hosting). Shree Partners acquisition brings a large insurance tech client, strengthens capabilities in cloud, data AI/ML and infrastructure while consolidating Persistents position in a strategic account, the brokerage added.

Anand Rathi has raised its FY22e/FY23e 5%/3%. The higher EPS of FY23 is despite the margin hit due to retention pay-outs (one-time, to run till FY25) and higher amortization (normalized with growth).

The brokerage values Persistent almost on par with Mphasis, given sustained high growth and hopes it will capitalize on new clients. Though, it sees supply-side challenges as a key risk.

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

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Anand Rathi sees more upside in this multibagger stock that has surged 163% this year - Mint