Persistent Systems - Review + Analyst Views

[chetan]

Since PERSISTENT SYSTEMS LIMITED is another cattle in the herd or OUTSOURCING companies without any significant distinction, compare yourself with Infosys and assign a Discount. Here we are presenting Brokerage Views on PERSISTENT SYSTEMS LIMITED IPO.

SMC Analyst has a 3 Star Rating with the following comment,

Considering the P/E valuation, the company is trading at pre issue P/E of 11.63x on the lower side of the band and 12.43x on the higher side of the band of its TTM EPS of Rs.24.93.Looking at the post issue valuation,the company is trading at P/E of 12.97 times on the lower side and 13.87x on the higher side of its post issue TTM EPS of Rs.22.35. At its P/B ratio it trades at 2.14x and 2.29 multiples of the lower and higher band of its pre issue book value of Rs.135.29 and 1.89x and 2.02x on the lower and higher side of its post issue Book value of Rs.153.37 respectively.

A highly favorable offshore-onsite mix, a strong client base, increasing repeat-business and a strong focus on the reviving US market — the largest for IT services — are key factors in favor of the company. Moreover, the industry in which the company operates is likely to grow at a faster pace. However, the factors that temper the company's outlook are its dependence on outsourced projects from developed markets, vulnerability to currency fluctuations and wage inflation apart from the possible withdrawal of tax concessions post March 31, 2011 which could adversely impact the bottom line of the company.

[chetan]

Antique Stock broking has a Subscribe Recommendation with the following note,

The peer group services firms are trading at an average P/E of 17.7x FY2009 EPS. The company has been managing to post PAT margins of around 18-
19% from FY05-08, despite operating in a challenging environment and in a T&M mode. We opine that once the global IT services sector stabilises, the
company should be able to stabilise its PAT at around 22% levels. The company has low capex outstanding, which would generate strong free cash flows also. Even if one were to assume a 20% discount on account of size to the average P/E of its peer set (17.7), a P/E of 14 is not unreasonable. Based on the same,  its fair value works out to INR395 based on FY10E EPS of INR27.8. This implies a 27% upside from upper price band of INR310 per share.
We have assumed revenues to be flat for FY10 and margins similar to FY08 (we are excluding 2009 margins as there were huge forex losses) and arrive at
an EPS of 27.8. We recommend SUBSCRIBE and expect investors to post 20-25% gain in near term.

[chetan]

HDFC Securities advises Medium Term Investors to subscribe to the IPO of Persistant systems,

PSL has clocked a healthy growth rate of 40 per cent CAGR during the period 2007-09 largely driven by an increasing trend of off shoring among Independent Software Vendors (ISV). However, in the first 6 months of the calendar year 2009, it faced pressure on revenues due to delay in product release / upgrade by few large ISVs and closure of some small ISVs. The outlook for PSL looks buoyant. Outsourced software product development (OPD) market is expected to be driven by increased outsourcing among ISVs and enterprises and maturing global offshore delivery model.

Based on annualized earnings for FY10, the offer is at 11.4-12.2 times its FY10 (E) EPS. Foreign Venture Capital investors including marquee names hold 19.75% of the post issue equity of PSL. Though other midcap IT companies are available at cheaper valuations, the model and the segments into which PSL is, makes it unique. The healthy book value of Rs.135.3 also provides comfort. Medium term investors can subscribe to the issue.

[chetan]

Motilal Oswal has a SUBSCRIBE Recommendation for the IPO of Persistent systems Ltd,

Between 2006 and 2009, PSL’s total revenues have grown at 40% CAGR and EBITDA has grown at 18% CAGR. Also, we feel that the company would be able to maintain the EBITDA margin in the range of 25% & PAT margin in excess of 13%. At the upper price band of Rs. 310, the stock will trade at 13.2x FY10 E EPS & 9.3x FY11 E EPS. The similar company in the sector is Mindtree consulting, which is trading at 17x FY10 E EPS. We feel that the company will command premium in the valuation, compared to its peers. We, therefore recommend SUBSCRIBE to this issue.

[chetan]

IndiaBulls has a Subscribe Recommendation on the IPO of Persistent Systems Ltd,

Based on our valuation, we recommend investors to subscribe to the issue. At a lower price band, the Company offers FY11E EV/EBITDA of 5.9x which is at a discount to peers average (Mindtree, Polaris Software, Hexaware, Mastek and Allied Digital) of 6.3x. Moreover, PSL proposes a comparable ROE of 20.1% for FY11E to the peers average of 20.7%. Although at upper price band, the FY11E EV/EBITDA of 6.3x appears in line with peer average, in our view, the issue may command some premium given high expected EBITDA margin of 23% for FY11E compared to 17.9% for peers average.

[chetan]

Sushil Finance has "A" Grade rating on the Public Issue with the following note,

Persistent has a very strong domain expertise in OPD space. The Company has good track record with highly experienced team of management. Moreover, it has very healthy balance sheet. During 9MFY10, PSL delivered consolidated Revenues, EBIDTA, & APAT of Rs. 4,294.1 mn, Rs. 1,007.2 mn, & Rs. 753.5 mn respectively. At the upper end of the price band (Rs.310), the stock will quote at 12.3x its FY10 annualized EPS of Rs.25.1, which we believe is very attractive. Hence we have given a rating of “A” and recommend subscribing to the issue

[chetan]

ShareKhans Views on the IPO,

In terms of valuations, the stock is being offered at around 11.5-12.3x its FY2010E earnings. This offering is almost  marginally above the valuation of the peers that are trading at 10.9x (the peer group average) their FY2010E earnings. However, there are no close competitors trading with a similar business model. Given the company’s high growth rates historically and niche positioning in a fast-growing segment, higher premium pricing and solid client relationships, the slight premium over its peers is more than justified and we believe that the premium could widen further in future.

[komal]

Persistent systems IPO was oversubscribed 93.60 times

FII - 144
HNI - 107
Retail - 21 [All allotment for 1 Lakh application will go to lottery] probably in a better ration of 4:5

Grey Market Premium at end of friday was Rs 150. Good luck for Allotment & Listing.