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Persistent Systems Ltd. (PSL) is a niche mid-cap IT services company focused on offshore
product development (OPD). Persistent has delivered 3,000+ product releases in the last
five years and works with 37 companies with US$1bn+ revenues
Key Investment Arguments:
Niche player in Offshore Product Development (OPD) space: PSL is a company based out of
Pune and a market leader in OPD space amongst Indian vendors. IDC estimates a five year
CAGR of 14% in R&D/Product Engineering spend to reach ~$66bn by 2013 from~$34bn in
2008 out of which, offshore spend is slated to grow at 16% to reach ~$16bn from ~$8bn.
It is uniquely positioned in that space as an Indian vendor since no other Indian company
exclusively caters to this space. Mindtree is a notable competitor, which acquired Aztecsoft
to get in OPD
Superior growth amongst other mid cap peers: PSL has outgrown other IT services mid cap
peer companies during FY2005-10. Only exception has been Mindtree, which has grown
more due to acquisition of Aztecsoft in FY08.PSL's growth has been organic whereas companies
like INFTC and KPIT have grown inorganically. We expect PSL to show CAGR of ~22% during
FY10-12E
New technologies and Smartphone sales to fuel superior growth: ompanies around the
world are investing in new technologies like Cloud Computing (CC), wherein companies
don't own any IT assets, but the same is shared using networks. Within CC, PaaS (Platform
as a Service) is a high growth area, which Forrester estimates to grow at a CAGR of 71%
from ~$0.35bn to ~$15bn in 2016. It allows developers to use a shared platform to
develop applications. Salesforce.com's Force.com and Azure from Microsoft are examples
of this service. PSL assists platform providers in developing platforms as well as it can
partner independent developers to develop applications on them.
Valuations and View:
Our price target on PSL is Rs. 500 in next 12-15 months. At our target price, stock will trade
at 15x/12x of its FY11E/ FY12E profit, which will be at a premium of around 15% to current
valuations of other mid cap IT services companies.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Persistent Systems Ltd. (PSL) is a niche mid-cap IT services company focused on offshore
product development (OPD). Persistent has delivered 3,000+ product releases in the last
five years and works with 37 companies with US$1bn+ revenues
Key Investment Arguments:
Niche player in Offshore Product Development (OPD) space: PSL is a company based out of
Pune and a market leader in OPD space amongst Indian vendors. IDC estimates a five year
CAGR of 14% in R&D/Product Engineering spend to reach ~$66bn by 2013 from~$34bn in
2008 out of which, offshore spend is slated to grow at 16% to reach ~$16bn from ~$8bn.
It is uniquely positioned in that space as an Indian vendor since no other Indian company
exclusively caters to this space. Mindtree is a notable competitor, which acquired Aztecsoft
to get in OPD
Superior growth amongst other mid cap peers: PSL has outgrown other IT services mid cap
peer companies during FY2005-10. Only exception has been Mindtree, which has grown
more due to acquisition of Aztecsoft in FY08.PSL's growth has been organic whereas companies
like INFTC and KPIT have grown inorganically. We expect PSL to show CAGR of ~22% during
FY10-12E
New technologies and Smartphone sales to fuel superior growth: ompanies around the
world are investing in new technologies like Cloud Computing (CC), wherein companies
don't own any IT assets, but the same is shared using networks. Within CC, PaaS (Platform
as a Service) is a high growth area, which Forrester estimates to grow at a CAGR of 71%
from ~$0.35bn to ~$15bn in 2016. It allows developers to use a shared platform to
develop applications. Salesforce.com's Force.com and Azure from Microsoft are examples
of this service. PSL assists platform providers in developing platforms as well as it can
partner independent developers to develop applications on them.
Valuations and View:
Our price target on PSL is Rs. 500 in next 12-15 months. At our target price, stock will trade
at 15x/12x of its FY11E/ FY12E profit, which will be at a premium of around 15% to current
valuations of other mid cap IT services companies.
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