Accumulate Persistent Systems - Analyst Meet Update - Angel Broking

We attended the annual investor meet of Persistent Systems (Persistent). We remain positive on the prospects of the company as it is well positioned to benefit from the next technology wave focused on cloud, mobility, analytics and collaboration. Following are the key takeaways of the meet:

Focus on emerging areas - cloud, mobility, collaboration and analytics: According to Persistent, cloud, mobility, collaboration and analytics will drive growth going ahead and will become an integral part of enterprise technology spending. Persistent currently derives ~40% of its revenues from these areas (each area contributes ~10% to its revenue). The company has been focusing and investing in these areas, which are an integral part of its 4x4x4 growth strategy (services 4 verticals - banking and finance, infrastructure and systems, lifesciences and telecom in 4 technology areas - cloud, mobility, collaboration and analytics using 4 services - IP, consulting, PES and sell-with partners). The management expects mainstream deployment of cloud computing to increase from H2CY2013.

IP led revenues: Persistent has been growing its IP led revenues since the past couple of quarters and is focused in building its IP-led services portfolio through organic as well as inorganic moves. The company is targeting to draw ~20% of its total revenue from IP services as against 18% in 2QFY2013 and 14% in 1QFY2013. IP led revenues have lower margins in the initial phase due to R&D costs involved in them but the company is confident of margin expansion going forward.

Sell-with partnerships: The company has sell-with relationships with companies such as IBM, Microsoft, Salesforce.com, Cisco, Samsung, etc. which is yielding results. This strategy is enabling new enterprise client wins, wider ecosystem reach and quicker/efficient execution.

Outlook and valuation: Persistent's management sounded confident of the company's growth exceeding Nasscom's estimate of 11-14% yoy in FY2013, despite challenging macros, citing that the deal pipeline has increased by 20-25% as compared to that in the previous quarter. Over FY2012-14E, the company is expected to record USD and INR revenue CAGR of 13.9% and 18.2%, respectively. The stock is currently trading at 10.2x and 9.1x its FY2013E and FY2014E EPS of Rs.48.0 and Rs.53.9, respectively. We continue to remain positive on the stock and maintain Accumulate rating on it with a target price of Rs.540.

Source : Equity Bulls

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