Multi Baggers

Persistent Systems

Incorporated in 1990, Persistent Systems Limited, a Pune based global company specialising in software product and technology, telecommunication, life science, healthcare, banking and consumer products sectors across North America, Europe and Asia.

The company is engaged in cloud, business intelligence and analytics, collaboration as well as mobility based computing platforms. Company’s product lifecycle offering covers the entire product lifecycle from product concept to product support. Moreover the company also offers models, including virtual research and development, risk & gain sharing, revenue sharing, outcome based pricing, outcome revenue sharing, global launch and product line extension.

In Feb'11, the Company acquired the outsourced software product development (OPD) business of Infospectrum India Private Limited. In Nov’11 the company opened a new facility at MIDC Info Tech Park in Nagpur.

Key Financials

Trading Data

Q2FY12 Highlights

For Q2FY12, the company reported revenue of USD 51.5mn, up by 3.1% qoq led by volume growth. In rupee terms, revenue came in at Rs 238.2Cr, up by whopping 6.4% qoq mainly on back of rupee depreciation against the dollar.

Industry wise, the major growth came in by the lifesciences and healthcare segment (contributing 11% to total revenue) registering 10.4% qoq growth. Revenues from the telecom and wireless segment (contributing 22% to total revenues) grew by 2.1% qoq mainly on account of European clients while the anchor industry segment including infrastructure and systems (contributing 67% of total revenues) grew by 2.3% qoq. Geography wise, Europe was the growth driver, registering 8.9% qoq growth while North America grew by flat 2.1% qoq.

EBITDA for the quarter was up by 13.1% qoq and 5.4% yoy. EBITDA margins grew by 112bps qoq to 19% on back of higher rupee revenue growth, lower SG&A expenses. Hike in the wages did not affect the margins to a great extent as the hike was not applicable to the full employee base but was allowed only for partial.

PAT came in at Rs 32Cr, up by 17.6% qoq on back of higher other income due to tax free dividend of Rs 1.2Cr.

Strengths

Strong growth trajectory: The key technology focus areas of Cloud Computing, Collaboration, Analytics and Mobility grew 22% yoy and management continued to guide these revenues to be 37-40% of the total business. IP revenues grew by 28% qoq with IP led revenues as % to sales rose to 7.6% in Q2FY12 from 6.1% in Q1FY12 and 8.2% in Q2FY11. The company expects significant pick up in its IP led revenues from H2FY12 as the company has increased its investments to 5.5% from 4.7% in Q1FY12 to keep up the demand cycle.

Client growth continuous despite volatile environment: Top clients continued to grow despite volatile demand environment growing by 9.2% qoq. Top 10 clients grew by 5.6% qoq. In 2QFY2012, the company added 37 new clients with its total client base at 253 as against 239 in Q1F Y12.

Key Concern

Any slowdown in developed countries shall affect the company’s profitability to large extent as it operates its niche focus on OPD segment.

Outlook & Valuation

Persistent Systems won the prestigious Bloomberg UTV's 'CXO Award 2011 - The Indian IT Company of the Year '(with revenues below Rs 5000 Cr category). The company recently partnered with IL&FS Education and Technology Services Ltd to develop a series of mobile based learning applications. Management has guided for 29% revenue growth in FY12. Owing to client additions, fresher ramp up, IP revenue growth and lower attrition rates the company is expected post revenue CAGR of 25% over FY11-13 with strong earnings growth. At CMP of 305, the stock is trading at 9.58x its FY12 EPS of 31.3 and 8.3x its FY13 EPS of 36 which seems fairly attractive and relatively cheaper with a price target of Rs 400, an upside of nearly 31% over a time frame of 12-15 months.

Disclaimer: Company is not a part of the proprietary or client portfolios of P.N. Vijay and PNVF of which P.N.Vijay is MD.