Persistent Systems - Keep the faith ::Emkay

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Persistent Systems

Keep the faith

ACCUMULATE

CMP: Rs 386                                       Target Price: Rs 450

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n     Initiate coverage on Persistent with an ACCUMULATE rating and a March’12 TP of Rs 450 on the back of strong revenue growth supported by stable margins through FY11-13E

n     Persistent has underperformed the markets by ~9% in the past 1 year owing to margin disappointment through FY11. Expect stock to outperform ahead as margin pressures abate  

n     Estimate revenue and EBITDA CAGR of ~26% each over FY11-13E. Profit CAGR relatively tepid at ~5% impacted by a step up raise in tax rates  to 30%/28% in FY12/13(V/s 7% in FY11)

n     Valuations modest at 11.4xFY12E and 10xFY13E earnings of Rs 33.8/38.7 respectively. Expect stock outperformance aided by revenue momentum and stable margins ahead