Persistent Systems' pricey valuation leaves no room for disappointment

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₹8,713.70 on Tuesday. This growth was primarily driven by its healthcare and life sciences vertical, while the troubled BFSI and software segments lagged. Despite the positive results, caution is advised going ahead.

Persistent remains optimistic about delivering industry-leading growth in FY24, in contrast to larger IT sector peers who have been cautious about their revenue projections, with some even trimming their guidance for the year. Persistent's impressive deal wins are driving optimism. In Q3, the total contract value hit a record high of $521.4 million with the annual contract value at $392.1 million, aided by deal renewals.

Nearly 80% of the company’s business comes from North America and the region typically sees higher quantum of renewals in the December quarter, the management said. To be sure, deal conversion momentum lends comfort on medium-term revenue visibility, but repeating past performance would be a tall order. “While we believe that Persistent under the leadership of Sandeep Kalra (CEO for 3+ years now) will likely grow faster than pre-pandemic times, it is unlikely to repeat the scorching growth witnessed during FY21-FY23, which we believe the market seems to be pricing in," said Nirmal Bang Institutional Equities report.

Further, there could be other challenges to growth. For instance, the company’s significant exposure to the US, could hamper revenue growth if market-wide expectations of a soft-landing in the US don't materialize. At FY25 price-to-earnings, the stock is trading at a multiple of 45 times, a steep premium to large-cap peers, showed Bloomberg data.