CMP (NSE) 15:40, 21 Jun
Last updated on
03 May, 2021
Earning Momentum to Continue in FY22
Strong visibility of Revenue growth in FY22: We forecast PSYS to deliver sector-leading 20% US$ revenue growth (consensus at 16%) following a 13% growth in FY21 as:
- In 2HFY21, PSYS has already won deals equal to 81% of FY21 revenues, executable in next 12 months
- In order to grow at 20% in FY22, coupled with 30% renewal assumed for FY21 revenues; PSYS needs to win US$283mn of new deal ACV, they have already won 84% of that in 2HFY21
- PSYS’ headcount grew 29% in FY21 vs. 13% revenue growth (sector-leading); a key leading indicator.
Margin Expansion likely in FY22: We forecast EBIT margins to reach 14.5% (consensus at 12.7%), led by:
- Operating leverage in SG&A
- Majority of hiring already done in FY21
- Higher margins in Alliance portfolio led by growth recovery and cost cuts
- Absence of Covid CSR (40bps) and IBM amortization (110bps).
Valuations are still in a comfort zone: PSYS is still trading at 23X on 1-yr fwd P/E while the stocks that have demonstrated consistent top quartile growth (e.g. LTI, COFO) have re-rated to 28X. As PSYS continues to deliver sector-leading growth, it has enough room to re-rate closer to these peers.