Prabhudas Lilladher has downgraded Persistent Systems to 'Accumulate' from 'Buy' with target price of Rs 1,130 as against current market price (CMP) of Rs 1,066 in its report.

Commenting on the investment rationale, the stock broker said, ''Persistent Systems' (Persistent's) Q4FY14 result was softer than PLe/Consensus expectation. We see near term headwinds on margin to restrict upside.

Persistent's Q4FY14 result was softer than expectation. Revenue grew 3.2% QoQ to Rs 4,467 million (PLe: Rs 4,535 million Cons: Rs 4,494 million) and 3.9% QoQ in USD terms to USD 72.6 million (PLe: USD 73.6 million, Cons: USD 72.9 million). EBITDA margins eroded by 66 bps to 27% (PLe: 27.2%, Cons: 26.9%) due to higher Royalty, Travel and Admin cost. EPS grew by 4.7% QoQ to Rs 16.7 (PLe: Rs 16.9, Cons: Rs17) despite lower than expected tax rate.

Persistent has successfully pushed the margin and revenue performance. IP-led business likely to stay soft in H1FY15 due to seasonality. We expect margin headwinds in H1FY15 to restrict any earnings upgrade in the near term.

Nevertheless, we expect Persistent to deliver FY15 revenue growth stronger than NASSCOM guidance. We downgrade Persistent to 'Accumulate' (from 'Buy'), with a target price of Rs1,130, 11x FY16E earnings estimates.''

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