Persistent Systems To Tata Elxsi: Bernstein Initiates Coverage Citing Long Growth Headroom

Bernstein Research has initiated coverage on four engineering services companies as their specialisation in auto and software services has long growth headroom.

These companies have built differentiated intellectual property, partnered with global innovators, and have built strong sales and management capability, the brokerage said in a note on July 8.

The brokerage has initiated coverage with an 'outperform' rating on Persistent Systems Ltd. and KPIT Technologies Ltd. and began coverage with a 'market-perform' rating on Coforge Ltd. It has an 'underperform' rating on Tata Elxsi Ltd.

Investment in engineering has become a necessity to develop new products and solutions, according to Bernstein. Engineering services are growing faster than IT services, while the automotive segment has seen disruption across electrification and autonomous, it said.

The brokerage sees the emergence of "billion-dollar specialists" engineering companies, which have built Block Extensible Exchange Protocol capabilities in embedded systems brought in sales and delivered growth.

• Bernstein initiated coverage with 'outperform' and a target price of Rs 5,920 apiece, implying an upside 24% from the previous close.

• Specialised in software services.

• Working with clients like Microsoft Inc. and Salesforce Inc.

• The brokerage initiated an 'outperform' rating on the stock with a target price of Rs 2,120 apiece, implying a potential upside of 25% from the previous close.

• Serves large original equipment manufacturers and tiers like BMW, General Motors India Pvt. and Cummins India Ltd.

• Has become a dominant player since its initial public offer in April 2019.

• Initiated a 'market perform' rating on the stock with a target price of Rs 6,080 apiece, implying a potential upside of 3.6% from the previous close.

• Traditional IT services company with focus on banking, financial services and insurance.

• Expects large IT services companies to gain market share over time.

• Recent acquisition of Cigniti Technologies Ltd. likely to see headwinds due to AI disruption.

• Initiated an ‘underperform’ rating on the stock, with a target price of Rs 6,030 apiece, implying a potential upside of 14.2% from the previous close.

• Has delivered 17% compound annual growth rate over the last five years.

• This is the slowest growth among engineering peers.

• Top five clients accounting for 44% of revenue is a key risk.

• Stock is expensive at 50 times its price to earnings ratio, with slowing growth momentum.

Shares of Persistent Systems and KPIT Technologies were trading higher by 0.78% and 1.21%, respectively. While, Coforge and Tata Elxsi stocks were down 1.26% and 0.19%, respectively. This compares to a 0.23% advance in the benchmark Nifty 50 as of 10:49 a.m.