Sector Indices

Name Value Change %
BSE Carbonex 1,114.93 3.6 0.3
BSE Greenex 1,823.20 6.1 0.3
BSE SME IPO 840.13 [12.4] [1.5]
BSE 100 6,864.07 21.9 0.3
BSE 200 2,743.71 8.6 0.3
BSE 500 8,512.09 26.8 0.3
BSE AUTO 13,632.16 17.5 0.1
 

Persistent Systems - Analyst Meet update

India Infoline Research Team / 10:58 , Dec 18, 2012

CMP Rs491, Target Rs490, Downside 0.9%

We interacted with Persistent Systems (PSYS) management at their annual investor meet recently to understand the growth opportunities and the company’s strategy to capitalize the same. Its niche positioning in software product development, well established client relationships and strengthened management bandwidth should help it benefit from the increased demand for adoption of newer technology areas like cloud, mobility and analytics.  We continue to remain positive on the company but with valuations rich at 9x FY14E earnings, the upside potential is limited.


Niche skills and faster adoption of newer technology areas to help demand traction

Management alluded to an increased urge in its client ecosystem for faster adoption of new technologies like cloud and mobility driven by accelerated end-customer adoption. Major cloud strategy announcements by top global tech players like Microsoft, HP among others and increased consumption of information/data through mobile/handheld devices validate the trend.  Also, the significant reduction in software product development costs and the cost advantage of technologies like cloud computing is expected to spur investments by these global technology companies as well as enterprises (especially in H2 CY13).  Exponential increase in data and the resultant need to analyze trends for decision-making is expected to sustain traction for data analytics- another area of focus for PSYS.


Strong positioning within technology eco-system and improving management bandwidth bode well

PSYS’s traditional expertise in outsourced product development (5000+ product releases in past five years) has resulted in its strong positioning as a key partner in the technology eco-system. Its early investments in nex-gen technology areas like Cloud, analytics, mobility and collaboration is helping it to benefit from the heightened demand of adoption of these technologies. Strong client relationships with shift in decision-making towards Line of business (LOB) heads and strengthened management bandwidth should facilitate the company to capitalize on the same.


Maintain positive view but valuations at ~9x FY14E restrict upside

Persistent Systems, with its credible expertise in OPD and early investment should benefit from the end-customer driven adoption in new technologies and increased product development initiatives. Execution now remains the key. We maintain our positive stance on the company but with valuations at 9x FY14E earnings, upside is limited. 


Financial Summary
Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E
Revenues (Rs m) 7,758 10,003 12,998 14,380
yoy growth (%) 29.1 28.9 29.9 10.6
Operating profit 1,583 2,324 3,454 3,448
OPM (%) 20.4 23.2 26.6 24.0
Reported PAT (Rs m) 1,397 1,417 1,853 2,164
yoy growth (%) 21.5 1.5 30.7 16.8
         
EPS (Rs) 34.9 35.4 46.3 54.1
P/E (x) 14.0 13.8 10.6 9.1
Price/Book (x) 2.6 2.3 1.9 1.6
EV/EBITDA (x) 10.2 6.8 4.2 3.9
RoE (%) 20.1 17.8 20.0 19.5
RoCE(%) 21.6 24.7 27.8 26.7
Source: Company, India Infoline Research