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Persistent Systems
Only pure-play India-listed company, providing outsourced product development
(OPD) services. Our interactions with industry professionals makes us believe that
OPD could be a nearly 30% growth segment over the next few years. Only about
5% of the global R&D spend (USD45-48b) is currently getting outsourced.
We see Persistent as a play on the structural shifts in the software industry
because of its increasing focus on cloud computing, mobility, collaboration and
analytics (together ~40% of revenue). We expect these areas to grow 45-50% in
FY12 and to drive overall company growth of about 30% in USD terms.
Other positives: Company is getting 2-5% price increases on contract renewals and
improving revenue mix; 2) Persistent is expanding its client base beyond software
developers by co-selling with partners such as Nokia to corporates; 3) high margin
IP content could increase from about 8% of sales to 15-20% over the next two
years, thus aiding margins.
Negatives: Attrition and wage pressures remain a concern, but with a 10% midyear
hike recently, we believe the worst is behind on the cost side.
We project 25% FY11-13E revenue and 13% EPS CAGR (pre-tax profit CAGR of
28%, taxes bound to rise in FY12 from <10% to 30%). Our DCF-TP of INR530
implies FY12/13 P/Es of 14.8x/ 11.6x.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Persistent Systems
Only pure-play India-listed company, providing outsourced product development
(OPD) services. Our interactions with industry professionals makes us believe that
OPD could be a nearly 30% growth segment over the next few years. Only about
5% of the global R&D spend (USD45-48b) is currently getting outsourced.
We see Persistent as a play on the structural shifts in the software industry
because of its increasing focus on cloud computing, mobility, collaboration and
analytics (together ~40% of revenue). We expect these areas to grow 45-50% in
FY12 and to drive overall company growth of about 30% in USD terms.
Other positives: Company is getting 2-5% price increases on contract renewals and
improving revenue mix; 2) Persistent is expanding its client base beyond software
developers by co-selling with partners such as Nokia to corporates; 3) high margin
IP content could increase from about 8% of sales to 15-20% over the next two
years, thus aiding margins.
Negatives: Attrition and wage pressures remain a concern, but with a 10% midyear
hike recently, we believe the worst is behind on the cost side.
We project 25% FY11-13E revenue and 13% EPS CAGR (pre-tax profit CAGR of
28%, taxes bound to rise in FY12 from <10% to 30%). Our DCF-TP of INR530
implies FY12/13 P/Es of 14.8x/ 11.6x.
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