Persistent Systems - Intellectual property focus pays off in a big way... - Asit C. Mehta Investment

Persistent Systems Ltd. (Persistent) reported Q2FY13 results that exceeded our estimates on all fronts. The company reported US$ revenues at $60.1 mn (10.1% sequential growth) versus our estimate of $55 mn. In Rupee terms, the company recorded revenue growth of 9.5% at Rs.3,268 mn against our estimate of Rs.3,086 mn. The operating margin at 27.2% (up 40 bps against expectation of 25.2%) continued to impress even after factoring 10% average wage hike. Consequently, the PAT was higher at Rs.446.5 mn against our anticipation of Rs.396 mn.

Our thesis of Persistent being able perform due to its inherent niche business model, being in the right business at the right time and investments in front end sales has been panning out well at the moment. We continue to be positive on this business and regard Persistent as one the key beneficiaries of growth in new technologies like cloud, mobility, analytics and collaboration. At Rs.465, the company is trading at a discount relative to its other midcap IT peers like Hexaware. Persistent is currently trading at 8.8x the FY13E EPS of Rs.52.6 and 8.9x the FY14E EPS of Rs.52.1. We continue to value the company at 10x the FY14E EPS and arrive at a target price of Rs.521, implying a 12% upside. We advise investors to ACCUMULATE the stock at the current price.

Source : Equity Bulls

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