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Persistent Systems
Demand trends remain strong
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
Enouraging management commentary on demand Demand outlook for
Persistent remains strong with clients set to increase offshore R&D budgets
this year and a robust fresher hiring target of 925 (vs. approx 400 last year).
Deal flow and new client additions remain good helped by partnerships with
global technology vendors. We expect new technology trends like enterprise
mobility and cloud computing to result in superior revenue growth for the
company (26% CAGR over FY11E-13E).
IP-led revs, pricing: key to margin performance Increase in contribution of Ipled
revenues (gross-margins of 1.5x the company average) remains the key
lever to offset impact to margins from wage hikes for FY12.
Billing rate increase is likely to provide a support of 200-300bps to operating
margins. A decline in attrition rates as seen in Q3 could also lead to
moderated annual wage hikes in FY12. Widening of employee pyramid and
cost optimization are the other levers.
Adoption by ISVs, enterprises to drive cloud Persistent's work in the cloud
space includes 1)platform development for vendors like Salesforce.com, IBM
and Microsoft, 2)cloud-enabling products of the software vendors and
3)helping enterprise consumers migrate to the cloud. Going ahead, company
expects strong traction in the latter two areas.
Price objective basis & risk
Persistent Systems (XPSYF)
Our PO of Rs550 is set at approx13xFY13 P/E, in-line with the current P/E
multiple on FY12 earnings. This implies a 5-10% premium vs. other mid-tier IT
services vendors, justified in our view given highest EBITDA growth and ROCE
vs. peers. Exceptional jump in tax rate from 9% (FY11) to 30%(FY12) impacts
implied P/E for FY12 (16x).
Downside risks to our price objective are a slowdown in th US technology sector,
sharp appreciation of the Rupee vs. the USD and higher-than-expected wage
inflation in India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Persistent Systems
Demand trends remain strong
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
Enouraging management commentary on demand Demand outlook for
Persistent remains strong with clients set to increase offshore R&D budgets
this year and a robust fresher hiring target of 925 (vs. approx 400 last year).
Deal flow and new client additions remain good helped by partnerships with
global technology vendors. We expect new technology trends like enterprise
mobility and cloud computing to result in superior revenue growth for the
company (26% CAGR over FY11E-13E).
IP-led revs, pricing: key to margin performance Increase in contribution of Ipled
revenues (gross-margins of 1.5x the company average) remains the key
lever to offset impact to margins from wage hikes for FY12.
Billing rate increase is likely to provide a support of 200-300bps to operating
margins. A decline in attrition rates as seen in Q3 could also lead to
moderated annual wage hikes in FY12. Widening of employee pyramid and
cost optimization are the other levers.
Adoption by ISVs, enterprises to drive cloud Persistent's work in the cloud
space includes 1)platform development for vendors like Salesforce.com, IBM
and Microsoft, 2)cloud-enabling products of the software vendors and
3)helping enterprise consumers migrate to the cloud. Going ahead, company
expects strong traction in the latter two areas.
Price objective basis & risk
Persistent Systems (XPSYF)
Our PO of Rs550 is set at approx13xFY13 P/E, in-line with the current P/E
multiple on FY12 earnings. This implies a 5-10% premium vs. other mid-tier IT
services vendors, justified in our view given highest EBITDA growth and ROCE
vs. peers. Exceptional jump in tax rate from 9% (FY11) to 30%(FY12) impacts
implied P/E for FY12 (16x).
Downside risks to our price objective are a slowdown in th US technology sector,
sharp appreciation of the Rupee vs. the USD and higher-than-expected wage
inflation in India.
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