Buy Persistent Systems - Breaking Dawn - Dolat Capital

PES under penetrated: It has large opportunity in PES segment considering the current low wallet share in several large account it serves and under-penetration in several upcoming startups (1100 new startups emerged in CY2011 alone). It is currently serving just fraction of the current offering to these large ISVs and has large upsell opportunity.

IP business growing: It is building its IP repository through Internal R&D (spends 5% of sales) and acquiring end of lifecycle or non-strategic assets from customers to rebuild and market the IP asset. Its IP revenues have grown at a CAGR of 60% over FY09-12 and offer a non-linear growth opportunity.

Sell-With: Partnered with Technology leaders such as Microsoft, IBM, Google, Cisco and others for joint go-to-market efforts for deployment of partner's co-developed products. Thus, it is well placed to benefit from the changing dynamics in favor of next generation technologies as it has engaged with most of the large traditional and emerging (Salesforce, Hadoop) technology giants.

Wide bandwidth: It has showcased its wide senior/mid level management team in its Analyst Day, giving loads of confidence on wide management bandwidth. It has been able to attract and retain best in class talent both at entry level (first choice on campus) as well as senior level (Software masters and several Doctorates). It has also expanded the role of these mid tier managers by delegating self driven-low attention accounts to relieve management bandwidth towards hunting of new critical accounts.

Rcloud: It has acquired another company in the cloud based disaster management services, Doyenz - with annual revenue run rate of USD 4mn (effective Oct). It expects large opportunity in terms of offering 'backup-as-a-service' to several SMB on its client/partner data centers.

View: Remain positive on account of ahead of industry growth, incremental focus on non linear - IP led revenues, sustained profitability outlook and attractive valuation (8x of FY15E Earnings). We maintain our Buy rating with a TP of ' 595 valued at 9.5x FY15E EPS of 62.4).

Source : Equity Bulls

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