ICICI Securities has maintained a 'Reduce' rating on Persistent Systems Ltd (PSYS), setting a revised target price of Rs 4,550. Despite the company’s robust operational performance and consistent deal momentum, the brokerage highlights stretched valuations and macroeconomic uncertainties as key concerns. Management's aspiration to reach a USD 2 billion revenue run-rate by FY27 remains intact, but cautious client behavior and modest TCV/ACV growth temper near-term expectations. Investors are advised to exercise caution as the stock trades at elevated multiples compared to historical averages and sector peers.

Strong Q4FY25 Performance Despite Global Headwinds

Persistent Systems delivered another resilient quarter, beating revenue expectations:

Revenue rose 4.5% QoQ in constant currency (CC) terms and 4.2% QoQ in USD terms, led by BFSI (6.1% QoQ USD) and Technology services (5.2% QoQ USD).

Sales (INR): Rs 32,421 million

EBIT Margin: 15.6%, up 70bps QoQ

Adjusted PAT: Rs 3,958 million, up 6.1% QoQ

The company outperformed analyst estimates, though healthcare vertical growth was muted at just 0.4% QoQ USD due to U.S. government funding cuts.

Deal Momentum Moderates, But Healthy Pipeline Retained

Persistent reported solid but moderating deal wins:

Total Contract Value (TCV) for FY25 grew 15% YoY to USD 517.5 million, while Annual Contract Value (ACV) rose 13% YoY to USD 350.2 million.

New Deal TCV: 64% of total

New Deal ACV: 57% of total

While strong, these numbers are slightly lower than the 16% revenue CAGR required to achieve the company’s USD 2 billion revenue aspiration by FY27.

Management indicated a slight delay in deal conversions due to increased client caution but remains optimistic about maintaining industry-leading growth.

Sectoral and Geographic Performance Snapshot

Key vertical and geographic contributions for Q4FY25:

BFSI: Strong 6.1% QoQ growth driven by digital transformation initiatives.

Technology: Healthy 5.2% QoQ uplift with increased demand for cloud services.

Healthcare: Flat at 0.4% QoQ due to external funding cuts.

North America: Grew 21% YoY, continuing to be PSYS’s largest revenue contributor.

Europe and India: Posted stable growth, while RoW outpaced others at 34% YoY.

Financial Projections and Valuation Metrics

ICICI Securities has marginally upgraded FY26–FY27 estimates reflecting strong execution:

The stock is currently trading at 46.1x one-year forward P/E, significantly above its five-year average premium to NIFTY IT.

Stock Levels for Investors

Current Market Price (CMP): Rs 5,157

Target Price (TP): Rs 4,550

Expected Downside: ~12%

Support levels are at Rs 5,000 and Rs 4,850, while resistance lies at Rs 5,300 and Rs 5,450.
Investors are advised to wait for a correction towards Rs 4,550 or below before considering fresh exposure.

Healthcare Vertical Faces Temporary Setback

Persistent’s healthcare growth slowed substantially in Q4:

Clients reliant on U.S. government funding faced immediate cutbacks, affecting ongoing projects.

Management expects normalization once alternative funding streams stabilize. However, other healthcare clients and sectors like MedTech remain on a healthy trajectory.

Steady Progress on AI and Innovation

Persistent continued to expand its AI footprint:

Data and AI practice grew over 50% YoY for two consecutive years, driven by platforms like SASVA and the Gen AI Hub.

Filed 15 new patents in FY25, increasing the total to 35 patents.

Established strategic partnerships with Nvidia, Google, Microsoft, and Amazon for AI initiatives.

Expanded Salesforce certifications to over 10,000, strengthening customer cloud engagements.

This AI-led differentiation could prove pivotal in sustaining premium valuations longer-term.

Operational Efficiency and Margin Outlook

Operationally, the company is tightening efficiencies:

Utilization remains healthy at ~88%, aided by quick hiring.

EBIT margin for FY26 expected to improve by 100bps YoY to 15.5%.

Lower attrition (12.9%) ensures talent stability compared to industry averages.

Cost control, pricing discipline, and higher offshore mix will remain critical levers for margin expansion.

Key Risks and Catalysts

Potential Upside Triggers:

Faster-than-expected macro recovery boosting discretionary IT spending.

Sustained momentum in AI-led transformational deals.

Margin expansion exceeding projections via better offshore delivery optimization.

Major Risks:

Prolonged delay in deal conversion affecting growth targets.

Client budget tightening further in core geographies like the U.S. and Europe.

Sustained valuation pressure relative to peers.

Long Term View
Persistent Systems continues to impress with resilient execution, strong client mining, and progressive strides in AI and cloud services.
However, with valuations significantly ahead of historical averages and modest near-term earnings growth visibility, ICICI Securities advises a "Reduce" stance with a target price of Rs 4,550.
Investors are encouraged to monitor margin trends, deal closures, and client discretionary spending before taking incremental positions.