Buy Persistent System :Centrum

Persistent is a global company specializing in software product and technology innovation. For more than two decades, the company has partnered closely with pioneering start-ups, innovative enterprises and the world’s largest technology brands. The company has utilized fine-tuned product engineering processes to develop best-in-class solutions for customers in technology, telecommunication, life science, healthcare, banking, and consumer products sectors across North America, Europe, and Asia.
After the recent acquisition of Patni by iGate, we believe that there can be further consolidation in the mid and small sized IT companies as a strategy for growth. This would lead to a shift in valuations of mid and small sized IT firms from their current PE multiple of 7-8x to around a PE multiple of at least 10-12x
In FY2012, PSL’s revenues crossed Rs.1,000 crore mark, with operating income growing by 29%. Operating profit grew by 34% to Rs.258 crore, while PAT grew by just 1.5% to Rs.142 crore on the backdrop of rise in tax rate from 8% to 28% and increase in deprecation on the back of significant rise in gross block to Rs.604 crore (from Rs.454 crore). The positive impact of expansion would be felt going forward. The cash and liquid investments in the books at the end of FY2012, is around Rs.90/share, which is around 24% of the CMP. PSL is confident of achieving revenue growth bettering NASSCOM’s FY2013 estimates of 11-14% growth for the industry. PSL is also confident of maintaining or improving its EBIDTA margins for FY2013
During Q1FY12, the company registered 34.4% YoY growth (11.1% YoY) in revenue to Rs.300.7 crore and net profit grew by 50.8% YoY (0.9% QoQ) to Rs.41.6 crore.
For more than two decades, Persistent has been an innovation partner for the world’s largest technology brands, leading enterprises and pioneering start-ups. With a global team of 6,600+ employees, Persistent has 350+ customers spread across North America, Europe, and Asia. The company enjoys a zero debt status and has a strong focus on its IP led business by making key investments in technology areas like cloud computing, BI & analytics, mobility and collaboration
The new initiatives have contributed almost 40% of the revenues for the company during FY2012. Management has aggressive focus on improving productivity and employee efficiency and controlling administrative cost
At the CMP of Rs.340. PSL trades at 7.7x P/E its FY2014E EPS of Rs.44. We expect PSL to improve revenues and margins going forward. Also, with the likely consolidation in mid and small sized IT companies, we expect the stock to trade around at least 10x its FY2014E EPS of 44. Hence, we recommend investors to consider accumulating PSL for a target of Rs.440, which is an upside of 28% from its current price.

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