Persistent Systems LTD - Initiating Coverage

Sector : Information Technology
Long Term Investment Call
Persistent Systems Ltd.

CMP : 309 Rating : Buy Target : 381
30-Aug-11
Initiating Coverage
Persistent Systems Ltd. (PSL) is a leading player catering to the unique outsourced product development space within the software development industry. The company operates in the telecom, computer infrastructure and life sciences domains and is focusing on developing capabilities in niche areas like cloud computing, business analytics, collaboration and mobility to complement its OPD service portfolio.
Key Data Year End Face Value (INR) NSE Code Reuters Code Bloomberg Code Shares Outstanding (Mn) Market Cap (INR Mn) 52 Week High / Low BSE Sensex / CNX Nifty 1 - Year Average Volume March 10.0 PERSISTENT PERS.NS PERS IN 40.0 11,779 475 / 284 16,416 / 4,920 65,210
(INR mn)
Investment Rationale:
Strong Presence in the Outsourced Product Development (OPD) Sphere :
According to Zinnov, only 5% of the total global software development budget is currently outsourced to third party OPD players. This is expected to grow in the coming future and PSL is well equipped to capitalize on this situation. PSLs estimated market share in the OPD space is around 15% in India. The company's proven management and its strong relationships across the product eco-system will aid its growth as outsourcing increases going forward.
Growth in Emerging Technology Domains to boost Top Line Growth:
Key Financials Net Sales EBITDA EBITDA Margin (%) Net Profit Net Profit Margin (%) EPS (Diluted)
FY10 6,012 1,464 24.3% 1,150 19.1% 32.1
FY11 7,758 1,583 20.4% 1,397 18.0% 34.9
FY12 E 9,984 1,902 19.1% 1,258 12.6% 31.5
FY13 E 11,631 2,254 19.4% 1,452 12.5% 36.3
PSL is focusing on four key themes Cloud Computing, Business Analytics, Collaboration and Mobility to drive future revenue growth. PSL sees a big opportunity to develop its capabilities within these sectors early on. As these are high growth segments, this focus will give it an edge over its peers as soon as these themes gain further traction. Currently, PSL derives nearly 40% of its total revenue from these themes alone.
Intellectual Property (IP) driven Revenue to improve Operating Profit Margins:
Key Ratios P/E (x) P/B (x) EV/EBITDA (x) ROE (%) ROIC (%)
FY10 9.6 1.9 6.7 18.0% 36.9%
FY11 8.9 1.7 6.8 18.7% 27.9%
FY12 E 9.8 1.5 6.1 14.9% 15.8%
FY13 E 8.5 1.3 5.0 15.2% 15.5%
PSL dedicates nearly 4 - 6 % of its technical work force especially for high yielding IP driven product development at any given time. Currently, revenue from IP driven initiatives contribute only 6.1% to total revenue. We believe this will increase to approximately 10% and 15% by FY12 and FY13 respectively, as more IP under development comes online and ready for deployment. Investment in Sales & Marketing to boost Client Mining:
Share Holding Pattern Promoters FIIs DIIs Public
June '10 June '11 38.9% 4.3% 23.9% 32.9% 38.9% 7.0% 24.6% 29.6%
Relative Price Performance

Persistent 570 520 470 420 370 320 270 Aug Sep Oct Dec Jan Feb Mar Apr May Jun Jul Aug Nifty
Most of PSL's 300 active clients provide small sized (less than USD 1 mn) business to the company. Also 37 of its clients have annual revenue in excess of USD 1 bn with R&D budgets of nearly 10 20% of their total revenue. This provides a significant opportunity for PSL to tap into its current client base for increased business. The company is investing in its sales & marketing teams to aid in this process.
Valuation:
We believe PSL, given its niche offerings and higher than average operating margins, deserves a premium in comparison to its listed peers. The stock is currently trading at 9.8x and 8.5x its FY12 E and FY13 E earnings. Historically, the stock has traded at 11.3x its Trailing Twelve Months (TTM) earnings. We value the company at 10.5x its FY13 earnings estimate arriving at a price target of INR 381 per share. We initiate coverage on PSL with a BUY rating, indicating an upside of 23% from current levels. Aasim Bharde | aasim.bharde@unicon.in
Source: Bloomberg, Unicon Research
Unicon Wealth Management www.unicon.in
CONTENTS
Particulars Page
Company Background ..............................................................................................................................................3 Industry Overview .....................................................................................................................................................5 Investment Rationale ..................................................................................................................................................9 Financial Analysis & Projections .............................................................................................................................12 Risks & Concerns ......................................................................................................................................................15 Peer Comparison ......................................................................................................................................................16 Valuation & Outlook ................................................................................................................................................17 Management Profile .................................................................................................................................................18 Achievements & Triumphs .......................................................................................................................................19 Facilities .....................................................................................................................................................................20 Persistent Systems Service Bouquet .......................................................................................................................20 Financial Statements ................................................................................................................................................22

COMPANY BACKGROUND
Founded in 1990, Persistent Systems Ltd. (PSL) is a leading player in the niche Outsourced Product Development (OPD) market within the Information Technology sector. The company caters to Independent Software Vendors (ISVs) across the entire product development value chain - product conceptualization, design, development, testing and support. With its constant focus on innovation and improvisation in this niche sector, PSL has developed a strong employee base of nearly 6000+ employees to cater to its large clientele (239 as of Q1FY12). The company's expertise and experience has helped it contribute to more than 3,000 product releases for various customers in the past five years. A major portion of the company's revenue comes from the North American region (86% in FY11) due to a large presence of ISVs in the continent. However, the company is increasing its presence in the European and Asia - Pacific markets through acquisitions and setting up of delivery centers.
Key Industry Verticals:

PSL operates in three primary industry verticals viz. 'Infrastructure & Systems', 'Telecom & Wireless' and 'Life Sciences & Healthcare'.
Industry Verticals
Telecom & Wireless Infrastructure & Systems Life Sciences & Healthcare
Revenue Break - up Industry wise

Infrastructure 100% 80% 60% 40% 75% 25% 12% 20% Telecom Life Sciences 11% 23% 11% 20%
68%
66%
69%
20% 0% FY08 FY09 FY10 FY11
Source: Company, Unicon Research
Infrastructure & Systems: PSL derives a majority share of its total revenue (69% in FY11) from the 'Infrastructure & Systems' vertical. Under this vertical, PSL offers complete analytics and data infrastructure solutions or components to its clients' software platforms. This data is used to analyze company operations, thus allowing clients to gain comprehensive knowledge about various factors affecting their business and develop solutions to improve efficiency. Telecom & Wireless: Around 20% of total revenue in FY11 was generated from the 'Telecom & Wireless' vertical. Using its in-depth knowledge and expertise of existing and emerging telecom technologies and business practices, PSL offers software solutions to telecom product development companies and carriers across handset, wireless and wire-line industries. Life Sciences & Healthcare: The 'Life Sciences & Healthcare' vertical's share is the smallest in terms of the company's total revenue, contributing around 11% of total revenue in FY11. Under this vertical, the company provides data management, integration & warehousing, data analysis - algorithms & visualization, data curation (automation of pipeline), web-based portals & web services, and connectors to seamlessly interface with third party applications.

New Initiatives focused on Growth:
The Indian IT industry is dominated by the traditional linear revenue growth model which entails proportionate growth in revenue as employees are added to the client's billing payroll. To break out of this model and prepare for the business environment of the future, PSL has begun exploring new technology themes which will define the IT industry in the future. The company has also dedicated a small portion of its technical workforce (around 4 - 6%) to develop intellectual property (IP) to complement these themes. The following table illustrates these new themes:
Cloud Computing
Provides for better resource utilization through resource sharing and flexible pricing models like pay-per-use. This would reduce expenses and time to market for product companies. PSL is working with its clients to build the necessary components to enable them to deliver a high-performance cloud computing platform so that their products function in a high resource sharing environment.
Business Analytics
Allows companies to identify and understand meaningful patterns in their day-to-day work. This permits decision makers to make effective decisions. PSL assists its clients by building and deploying tools and other infrastructure that processes large volumes of data through data mining, statistical techniques and visualization to deliver domain specific insights. Large firms are developing collaboration strategies involving a common platform that would permit employees, customers and partners to connect and interact with each other. PSL develops such customized frameworks for its clients to integrate different collaboration techniques within their firms. Over the last decade, smart phone penetration in the corporate market has grown significantly. As a result, mobile telephony product companies are selling mobile internet connectivity products to handset manufacturers, wireless network manufacturers, etc. PSL has partnered with all major players in this eco-system and built frameworks to provide an integrated offering to clients.
Collaboration
Mobility
Going forward, these new technological themes can be key value generators for the company. Currently, these themes account for around 40% of total revenue.

INDUSTRY OVERVIEW
The global software market is valued at approximately USD 300 - 320 bn in FY09. The Research & Development (R&D) component of this market accounts for only 15% of this value or USD 45 - 48 bn. With almost half of the Independent Software Vendors (ISVs) in the United States of America (USA), almost 73% (USD 33 - 35 bn) of the total R&D spending comes from this geography alone. Emerging markets like India and China have a minority share of around 15% in the R&D pie.
Global Software Product Market USD 300 - 320 Billion Total R&D Spend (15%) USD 45 - 48 Billion Others (85%) USD 272 - 285 Billion
A
Concept (8%) USD 3.6 - 3.8 Billion
B
United States (73%) USD 32.9 - 35.0 Billion
C
Mature Products (75%) USD 33.8 - 36.0 Billion
D
Total In-House (95%) USD 42.8 - 45.6 Billion
Development (37%) USD 16.7 - 17.8 Billion
*Other Developed (12%) USD 5.4 - 5.8 Billion
New Products (25%) USD 11.3 - 12.0 Billion
Total Outsourced (5%) USD 2.3 - 2.4 Billion Note: 1. In-house includes off-shoring to Captive centers 2. Outsourced is only to third party service providers
QA / Testing (31%) USD 14.0 - 14.9 Billion
**Emerging Geo (15%) USD 6.8 - 7.2 Billion
Support / Sustenance (23%) USD 10.4 - 11.0 Billion

Source: Zinnov
India = USD 3.8 - 4.2 Billion China = USD 2.0 - 2.4 Billion
Furthermore, as most ISVs (especially those in the USA) have their own software development teams, a major portion (95%) of the global R&D spending budget is done in-house. The remaining 5% is outsourced to third party software developers.

Outsourced Product Development:
Outsourced Product Development (OPD) is a niche portion of the Information Technology (IT) industry wherein OPD service providers assist ISVs in the entire product development cycle right from the conception stage to the maintenance stage. Different stages of the product development value chain are outsourced by ISVs to various OPD players depending on the expertise and the track record of the latter. During the growth stage (early stage) of an ISV's product, a small part of the development process is outsourced. Processes like prototype design and evaluation are normally outsourced to third party providers. Core processes like conceptualization remain with the ISV. As these products enter the mature stage, a whole host of processes in the production chain are outsourced, especially client specific upgrades to existing software, professional services and deployment. As products enter the decline stage, ISVs' come to OPD players for assistance regarding client migration to newer software and assistance with customer support.
Product Development Lifecycle

Indefinitely Elastic Middle Period
Market Growth
C B
Growth Market Mature Market
D
Declining Market Fault Line! End of Life
A
Technology Adoption Life Cycle
Source: Investor Presentation - May 2011
Time
With products almost on the way of being phased out, ISVs usually share the IP of the product with their third party OPD partners in exchange for royalty revenue at times.

Difference between Regular IT Services and OPD:
In the IT industry, most projects are defined by three key variables viz. 'Client Requirements' and the 'Time' and 'People / Money' needed to implement these requirements. In regular IT services, projects with fixed requirements are handed to vendors who use 'Time' and 'Money' as variables to arrive at a cost estimate for the project. After the project is completed, it goes under maintenance mode. In the OPD segment, requirements are less clearly defined as the product objective is broad-based at times and more than one version needs to be prepared before the product is ready for launch. Hence requirements are not fixed. Instead, most product developers are given deadlines before which the product should be ready for deployment. Once these deadlines are decided, the budgets for the product are fixed.
IT Services
Requirements (Fixed)
Outsourced Product Development

Requirements (Variable)
Time (Variable)
Time (Fixed)
People / Money (Variable)

People / Money (Fixed)
Thus, unlike a typical IT project where requirements are fixed and time & money are variable, a product development project starts with fixed time and money constraints, keeping requirements variable. However, in OPD projects, all requirements can never be completely fulfilled in a particular version. As a result, developers plan multiple versions for their product.
Benefits of Outsourcing:
In the fast moving technology-heavy world of today, ISVs face intense competition to come out with newer versions of products in shorter periods of time while making optimum use of their limited resources on hand. ISVs efforts to achieve this short time-to-market is often constrained by shorter product life cycles, technological obsolescence, increasing design & engineering complexity and mounting cost pressures. By outsourcing product development to third party OPD players, ISVs are able to: Reduce costs Utilize resources on hand efficiently Focus on newer technologies Reduce risk of failure (in case of established OPD players)

Future Trends:
International Data Corporation (IDC) has forecasted a five-year compound annual growth rate (CAGR) of 14% for R&D / Product Engineering (PE) services, reaching an estimated USD 65.7 bn in CY09 - 13 period. IDC defines R&D / PE Services as the taking over of the research and development of a product company's value chain (in part or full) by a third-party services organization. Over the same period, outsourced R&D spending (off-shore revenue) is expected to grow at 19.1% CAGR to USD 16.1 bn. As explained earlier, the current R&D spend that is outsourced to third party OPD players constitutes only 5% of the total R&D budgets of ISVs. Going forward, with increasing costs and an uncertain economic scenario in the Western markets, ISVs will be more inclined to outsource more of their product development processes that do not form a core part of their companies. As such, we believe the percentage of outsourced R&D in the global software market would increase further allowing companies in the OPD space to capture this business.
Worldwide R&D / PE Services Offshore Revenue

Spending (USD mn) 20,000 15,000 10,000 5,000 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Source: IDC
Worldwide R&D / PE Services Spending

Spending (USD mn)
25.00% 20.00% 15.00% 10.00% 5.00% 0.00%
Growth (%)
Growth (%) 25.00% 20.00% 15.00% 10.00%
80,000 60,000 40,000 20,000 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
5.00% 0.00%

INVESTMENT RATIONALE
Strong Presence in the Outsourced Product Development (OPD) Sphere
Persistent Systems Ltd. (PSL) is one of the few players in the listed space whose core focus lies in the outsourced product development domain. PSL provides OPD related services across the entire value chain spanning through different time stages of the software product cycle. The OPD market is highly fragmented in India. However, PSL's 20+ years of experience in this field sets it apart from its competitors. Also as per data from IDC, India's revenue share from offshore product development is estimated at around USD 1.12 bn as of FY11. PSL's USD 170 mn revenue suggests that it controls around 15% of the OPD market share in India, making it one of the largest OPD players in the country. With economic uncertainty looming over the western markets, there is a strong chance that more R&D spending will be off-shored going forward as in-house R&D budgets of ISVs are slashed while they continue to remain under pressure to roll out new products quickly. PSL is well trenched to capture this growth by leveraging its expertise in this field and its specialized work force. Having a presence across the value chain allows PSL to cater to ISVs with products through different growth stages.
PSLs Services across the Product Development Lifecycle

PSL Service Bouquet Product Engineering New Technology Exploration Time to Market Accelerators Deployment & Support Product Sustenance & End of Life
Early Market Growth Market
Mature Market
Declining Market
Unlike the usual IT services business, OPD players are seen as future development partners of ISVs. We believe PSL is well on its way to scale up its business model going forward due to its experience in this niche segment which spans over two decades as well as its relationships with marquee clients like Microsoft, IBM, Agilent, etc. This would result in better utilization of resources available on hand which would reflect positively on operating margins. PSL's strong and proven management team, its impressive client base and strong relationships across the product eco - system will help it further consolidate its position in the vastly fragmented OPD space in India.

Growth in Emerging Technology Domains to boost Top Line Growth
In its bid to get ahead of its peers in the industry, PSL has identified key technology areas which will fuel its future growth. These are: Cloud Computing Business Analytics & Intelligence Collaboration Mobility
Early investments in these key technology themes are yielding results for PSL. As of FY11, nearly 40% of top line revenue was generated from these themes. Going forward, we believe these themes will continue to improve revenue visibility for the company. Demand will be fueled especially by Cloud Computing, which is expected to grow to nearly three times in the CY09 - 13 horizon to USD 42.2 bn. Many large ISVs like IBM and Microsoft are planning to allocate nearly 80 - 90% of their total R&D budgets on strategies regarding cloud computing. This presents a significant opportunity for PSL to boost its revenues going forward. Such contracts also present PSL to improve revenues through the non - linear route (wherein fixed investments yield higher top line growth).
Intellectual Property (IP) driven Revenue to improve Operating Profit Margins

A key factor that distinguishes PSL from its peers is its specific focus on developing IP products, wherein it devotes around 4 - 6% of its technical workforce for the same. PSL's focus lies in three main areas of innovation: platform innovation, product development process innovation and domain specific innovation and has thus developed value added products like time-to-market accelerators, connectors and integration service products. These high gross margin products yield revenues to PSL in the form of revenue share agreements and royalty contracts. In the FY08 - 11 period, PSL's IP driven revenue grew at a CAGR of 71%. As more of PSL's inhouse developed IP start to yield results, we expect PSL's IP driven revenue to grow at a CAGR of 64% in the FY11 - 13 period. We believe that IP-driven revenue as a percentage of total revenue can rise from the current 9% (FY11) to around 16% by FY13. Going forward, IP-driven revenue can easily touch 20 - 25% in the next five years. This constant focus on non-linear growth would reflect positively on EBITDA margins going forward. Despite the impact of wage hikes and investment in sales & marketing staff, we expect margins to improve by approximately 75 bps in the FY11 - 13 period.
IP (% of Revenue)
IP (% of Revenue) 20.00% 16.00% 12.00% 8.00% 4.00% 0.00% Q1FY08
Q2FY09
Q3FY10
Q4FY11
Q1FY13E
10

Investment in Sales & Marketing to boost Client Mining
Over the years, PSL has developed long term relationships with its clients through successful project executions. As of FY11, PSL has nearly 300 active clients, of which nearly half of these have had a relationship with PSL for over five years. Currently, nearly 240 clients generate revenue for PSL in the 'less than USD 1 mn' range with average ticket prices in the range of USD 500,000 - 750,000. As of FY11, nearly 94% of total revenue was generated from repeat business. We expect this trend to continue with PSL increasing its business with a lot of its existing clients going forward. Also as of FY11, only 9 of PSL's clients contribute over USD 3 mn each to its revenues. This figure has remained more or less constant over the past ten quarters. 37 of its clients have annual revenue over USD 1 bn. These clients have R&D budgets in the 10 - 20% range of their total revenue. The Top 10 clients account for nearly half of PSL's total revenue. This suggests that there is a significant opportunity for PSL to increase revenue traction from its existing clients going forward. All this leads us to believe that besides improving on its niche offerings, the company can benefit well by mining its existing client base. The company has increased investments in its sales & marketing force significantly and has identified strategic accounts to enhance business. PSL has also adopted a 'Sell With' strategy wherein it partners directly with ISVs to develop products. This has led to PSL develop the required expertise to deploy these products directly for various clients of these ISVs. This strategy has unlocked access to potential new clients who wouldn't necessarily approach third party OPD players like PSL for their requirements. Access to new clients by piggy-backing on its existing clients does not need further investments in sales personnel but provides additional business. This will give a boost to PSL's top line in the coming quarters.
Top 1 / 5 / 10 Client Contributions

Top 1 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Top 5 Top 10
No. of Large Clients (> USD 3 mn Revenue)

10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12
Strong Balance Sheet due to High Cash Reserves and Zero Debt
PSL has no debt on its books and has the capability to generate enough cash to sustain its business going forward. The company has strong cash reserves on its books (approximately INR 1 bn as of FY11) and is open to both organic and inorganic growth, especially in the European and Asia - Pacific region as it tries to reduce its dependency on the North American geography (86% of total revenue as of FY11). In the FY11 - 13 period, we expect cash-flow from operations to grow by 18% CAGR to INR 2.2 bn which in our opinion is more than sufficient to spend on any capital expenditure that PSL may require during this period, pay out as dividends or use for acquisitions.
11

FINANCIAL ANALYSIS & PROJECTIONS
Revenue Building Forward on a Strong Foundation
Persistent Systems Ltd. (PSL)'s core focus in the unique outsourced product development space and its' years of experience in this field provides it with a superior advantage over its rivals. This is reflected from the company's revenues over the past few years which grew at a healthy CAGR of 22% in the FY08 - 11 period despite flattish growth in FY10 which witnessed the aftereffects of the financial crisis of 2008.
Revenue & Revenue Growth

Revenue (INR mn) 15000.00 12000.00 9000.00 6000.00 3000.00 0.00 FY08
Revenue Growth (%) 45.00%

GR CA 22%
36.00% 27.00% 18.00% 9.00% 0.00%
FY09
FY10
FY11
FY12 E
FY13 E
Scaling up of PSL's existing client budgets, increased R&D spending all around and focus of non - linear IP led initiatives like cloud computing, analytics, etc. would contribute to revenue growth in the coming future. We build a 22% CAGR top line revenue for the FY11 - 13 horizon. The management expects IP driven revenues to contribute 11% of total revenue in FY12. We are building a 10% contribution to total revenue in FY12 by IP initiatives and expect this to grow to 16% by FY13.
Operating Profit (EBITDA) Restarting its Gradual Uptrend

Historically, PSL has enjoyed healthy operating margins relative to its peers. However, the company's increasing focus on investing in its sales & marketing resources as well as wage hikes to retain its talented and highly skilled workforce have led to pressure on margins in the recent past. The company also dedicates 4 - 6% of its experienced staff especially for development of in-house IP products which does not translate into revenues immediately. PSL witnessed a nearly 400 bps decline in EBITDA margin in FY11 to 20.4% primarily due to these reasons. Investments in high growth technology areas and IP led initiatives will bear fruit in the near future. As a result, we believe that margins should demonstrate a steady improvement in the coming years. Going forward, PSL also has the following levers to improve margins: Increased revenue growth from non linear sources (especially high margin IP driven revenue) Uptick in billing rates Increased utilization and improvement of the fresher experienced employee mix. Decreasing impact of wage hikes Reducing General & Administrative expenditure
12

On the back of these levers, and the increasing focus of high margin IP driven revenue, we expect operating margins to improve by around 80 bps by FY13 from current levels, despite wage hikes and investment in sales & marketing staff in FY11. PSL's EBITDA has grown at a CAGR of 21% in the FY08 - 11 period and is expected to grow at a CAGR of 19% going forward by FY13.
EBITDA & EBITDA Margin

EBITDA (INR mn) 2500.00 2000.00 1500.00 1000.00 500.00 0.00 FY08
EBITDA Margin (%)

1 GR CA 9%
30.00% 24.00% 18.00% 12.00% 6.00% 0.00%
FY09
FY10
FY11
FY12 E
FY13 E
Utilization Rate Trend

80.00%
Billing Rate Trend (USD / ppm)

Onsite Billing Rate $14,400.00 Offshore Billing Rate $3,800.00
76.00%
$13,600.00
$3,700.00
Onsite
72.00%
$12,800.00 $3,500.00
68.00%
$12,000.00 $3,400.00
64.00% Q1FY08 Q3FY08 Q1FY09 Q3FY09 Q1FY10 Q3FY10 Q1FY11 Q3FY11 Q1FY12
$11,200.00 Q1FY08 Q4FY08 Q3FY09 Q2FY10 Q1FY11 Q4FY11
$3,300.00
13
Offshore
$3,600.00

Net Profit Increased Taxes Spoiling the Party in the Near Term
PSL has so far enjoyed a low tax rate in the range of 2 - 7% as it had the advantage of the Software & Technology Parks of India (STPI) tax breaks as well as benefits from being present in Special Economic Zones (SEZ). This has permitted PSL to enjoy a healthy net profit margin of around 18 - 20% in the past despite the increasing investment in IP led initiatives. PSL has so far grown its net profits by 19% on an annual basis in the FY08 - 11 period. With the removal of these tax breaks, post the Union Budget of 2011 - 12, the effective tax rate of PSL has shot up to 31% levels. We have built a 31% tax rate in FY12 E and decrease it to 29.5% for FY13 E. We expect net profit to decline by 10% (YoY) in FY12 due to the removal of the tax breaks. However, we expect net profits to continue their uptrend going forward as top line improves, growing at a CAGR of 2% in the FY11 - 13 period. Net profit margins are expected to fall to 12.6% in FY12 from the current 18% due to the tax hike and then improve to approximately 14% by FY13.
Profit & Profit Growth

Profit (INR mn) 1600.00 1200.00 40.00% 800.00 0.00% 400.00 0.00 FY08 FY09 FY10 FY11 FY12 E FY13 E
Net Profit Margin Trend

Profit Growth (%)
CAGR 2%
PAT Margin (%)

80.00%
25.00% 20.00% 15.00% 10.00% 5.00%
-40.00%
0.00% FY08 FY09 FY10 FY11 FY12 E FY13 E
14

RISKS & CONCERNS
Substantial Dependence on the North American Region for Revenue Persistent Systems Ltd. (PSL)'s geographical revenue mix is largely skewed towards the North American (primarily USA) region. As of FY11, nearly 86% of total revenue came from this region alone, while Europe and Asia - Pacific contributed 6% and 8% respectively. Economic turbuluence in this region (as well as the Euro zone) could adversely impact PSL's revenues. However, the company's geographical diversification, reflected by its recent acquisitions in France and Japan, is a sign that the company is serious about this risk and would like to mitigate it as much as possible going forward.
Rupee Appreciation Risk: More than 90% of the company's revenues are in US Dollar terms while most of its expenses are in Indian Rupees. PSL has an active hedging policy, as part of company strategy, wherein it hedges around 12 months of its net receivables with forward contracts. As of date, the company has hedges around INR 48 per USD. However, any significant appreciation of the Indian Rupee vis--vis major foreign currencies could significantly hurt our margin estimates.
Competition from Large Scale Players & Captives of Large ISVs: PSL is a mid-sized player catering to the small but niche OPD space. Its larger peers like Tata Consultancy Services have a small presence in the OPD space, but their focus lie in their own respective domains. If these companies turn their attention in full-fledge to this space, they will have the advantage of scale. Also multi-national product companies like IBM and Intel have set up captive centers in India to outsource certain processes in their product development chain. Such competitors would eat into PSL's market share in the sector and drive margins down.
Attrition & the Costs of Retention: The Indian IT industry has always had attrition as its main problem. The issue becomes more important for PSL as it employs only computer science graduates in its technical workforce. In the world of ever increasing competition, we believe PSL's workforce could be targets of poaching from rival firms, especially those who may be looking to expand in the OPD space. A sudden rise in attrition could lead to shortage of bench strength and reduce optimal usage of resources. As such, PSL will have to bear the pressure of wage hikes to retain and attract quality talent, affecting its margins going forward.
15

PEER COMPARISON
Persistent Systems Ltd. (PSL) is a pure - play Outsourced Product Development (OPD) player. There are no listed players in the Indian markets which are a perfect match for PSL as of now. However, there are various listed entities that have a small to mid - level presence in the OPD space. MindTree gained a presence in this niche field after taking over Aztecsoft. Polaris Software, Geometric and Sasken Communication Technologies are the other peers close to PSL in terms of its core business. Large cap players like Wipro, Tata Consultancy Services, etc. too have a small presence in this space but for comparative purposes, we have not included those in this evaluation.
Company Hexaware Tech. Ltd. MindTree Ltd. Polaris Software Ltd. Geometric Ltd. Sasken Comm. Tech. Ltd. Peer Average Persistent Systems Ltd.
Market Cap (INR mn) 21068.3 13748.1 12906.0 2377.5 2566.6 N.A. 11779.0
EBITDA Margin (%) FY12 E 14.2% 13.2% 14.0% 12.2% 14.2% 13.8% 19.1% FY13 E 13.7% 13.9% 14.2% 12.8% 14.7% 13.9% 19.4%
ROE (%) FY12 E 18.8% 17.2% 18.3% 17.9% 10.2% 17.8% 14.9% FY13 E 19.8% 17.4% 18.5% 18.8% 10.1% 18.3% 15.2% 11.6 9.4 6.2 5.3 5.3 9.1 9.8
P / E (x) FY12 E FY13 E 10.3 8.1 5.4 4.2 4.9 8.0 8.5 2.0 1.5 1.0 0.9 0.6 1.5 1.5
P / B (x) FY12 E FY13 E 1.8 1.3 0.9 0.8 0.5 1.3 1.3
Source: Bloomberg, Unicon Research *Hexaware Tech FY = CY = January - December
PSL's forward operating (EBITDA) margins are strong compared to its peers. Its Return on Equity (ROE) is comparatively less with respect to its peers. This is largely due to the effect of taxes on its bottom - line. We believe that PSL can match this ROE going forward and even better it in the future. The average peer-set ROE is 18.3% for FY13 E while that of PSL is 16.5%. On the P / E front, PSL is trading at a slight premium relative to its peers in FY12 E. We believe its unique position in the highly lucrative and niche OPD space justifies this premium over its peers who don't have a presence as strong as PSL. For FY13 E, PSL is currently trading at 8.5x its forward earnings, lower than its peer group. Also on the P / B parameter, PSL is trading at 1.5x and 1.3x its FY12 E and FY13 E book value per share which is similar to its peer group. All of these evaluations lead us to believe that PSL is a strong value buy and there is tremendous scope for a re-rating of this stock in the coming future.
16

VALUATION & OUTLOOK
Persistent Systems Ltd. (PSL) is one of the few listed players in the niche outsourced product development (OPD) segment of the software development industry. With increasing costs of Independent Software Vendors (ISVs) and stricter deadlines to bring to market newer versions of products, the outsourced product development industry is poised to grow strong in the coming years. IDC is estimating a 19.1% CAGR in offshore OPD revenue growth in the CY09 - 13 period to USD 16.1 bn. PSL with its two decade long experience and expertise in this field is a front running player to capture this growth momentum. PSL's increasing focus on the non - linear revenue segments like Cloud Computing, Analytics, etc. and its IP product focus would improve its operating margins, thus distinguishing it apart from its peers. We are valuing PSL on a P / E valuation basis. The stock is currently trading at 9.8x and 8.5x its FY12 E and FY13 E earnings. Historically, the stock has traded at 11.3x its Trailing Twelve Months (TTM) earnings. We believe PSL, given its niche offerings and higher than average operating margins, deserves a premium in comparison to its listed peers. Barring an adverse negative economic slowdown in its western markets, PSL's future is very bright. We value the company at 10.5x its FY13 earnings estimate arriving at a price target of INR 381 per share. We initiate coverage on PSL with a BUY rating, indicating an upside of 23% from current levels.
17

MANAGEMENT PROFILE
Name Designation Background Dr. Anand Deshpande is a B. Tech graduate from IIT Kharagpur and has completed his Masters and PhD in Computer Science from Indiana University, Bloomington (USA). Chairman, Managing Director & CEO He worked at Hewlett Packard Laboratories as an MTS from 1989 to 1990. In 1990, he founded Persistent Systems Ltd. Hari Haran holds a BS in Engineering from IIT Kharagpur, an MS in Computer Science from Illinois Institute of Technology, Chicago (USA) and an MBA from President, Persistent Systems Inc. University of Louisiana. He has over 22 years of work experience in the telecom, wireless and broadband industry. His duties at PSL include Global Sales, Marketing and Business Development. Nitin Kulkarni has a BE (Electronics) degree from Mumbai University and a ME (Electronics) from Nagpur University. He brings with him over 18 years of work Chief Operating Officer experience delivering business solutions in various capacities in firms where he has worked in the past like Infosys, Siemens and NELCO. Dr. Srikant Sundararajan is a B. Tech graduate from IIT Madras and has attained his MS and PhD in Computer and Information Sciences from University of Illinois Worldwide Head of Corporate Strategy Urbana Champaign (USA). He has nearly 20 years of experience that spans across companies like HCL Technologies, Cognizant Tech Solutions, Hewlett Packard and Informix (his own successful startup firm). Ranganath Puranik holds a BE (Electronics & Telecommunication) from Karnatak University and an MBA from Northwestern University, Chicago (USA). He brings with EVP and Head, New Business him strong global experience in software, telecom, enterprise and global product Initiatives & Portfolio development having worked for GE, Motorola and Sasken in various roles spanning almost 20 years. His duties at PSL involve business growth through new initiatives in key technology verticals. Vijayaraman has a BE (Electrical) from the University of Calicut and a post graduate degree in Computer Science from IIT Madras. He brings to PSL over three decades of Head, Persistent Labs experience in architecting, designing and building systems. He is responsible for contributing technical insights from a customer facing perspective and guiding PSL in investing for the future. Rajesh Ghonasgi is a qualified Chartered Accountant, Cost Accountant and a Company Secretary. His experience spans over 20 years in leading technology companies, handling Chief Financial Officer Finance and Legal functions. His responsibilities at PSL are managing all financial activities like risk, planning and record keeping, as well as reporting to management. Based in Austin, TX (USA), Mike brings extensive sales and marketing executive experience from his 30+ years with IBM. As Senior Vice President at Persistent, Mike is responsible for leading the IBM sales effort and is driving work to build the overall company value proposition and brand, executive level marketing messages and strategic marketing. Dr. Hemant Pande has completed his B. Tech in Computer Science from IIT Bombay and his MS, MPhil and PhD in Computer Science from Rutgers University, NJ (USA). Prior to joining PSL, he worked with Siemens and TCS. Venkateswaran has earned his B. Tech and M. Tech in Computer Science from IIT Bombay and has a PhD in Computer Science from Washington State University. He has over 19 years of experience in the software industry, mainly in the telecom domain. Prior to joining PSL, he was at Bell Laboratories and Lucent Technologies. Vivek Sadhale earned a BCom from Mumbai University in 1995 and a LLB from Pune University in 2001. He is an Associate member of the Institute of Cost and Works Accountants of India and a fellow member of the Institute of Company Secretaries of India. He also passed Chartered Secretary exam the Institute of Chartered Secretaries and Administrators, UK in the year 2002. He holds overall responsibility for legal, compliance, governance investor relations and corporate secretarial matters. Amrita Joshi graduated Magna Cum Laude from UCLA with BA in Business Economics and received her MBA with Honors from the Anderson School of Management at University of California at Los Angeles. Her experience spans from buyer to consultant to service provider. At PSL, she heads up all marketing efforts for the companys products.
Dr. Anand Deshpande
Hari Haran
Nitin Kulkarni
Dr. Srikant Sundararajan
Ranganath Puranik
T. M. Vijayaraman
Rajesh Ghonasgi
Mike Kerr
SVP - Sales
Dr. Hemant Pande
Chief Planning Officer
Dr. R. Venkateswaran
SVP, Head of Telecom Business Unit
Vivek Sadhale
Company Secretary & Head Legal & Investor Relations
Amrita Tahiliani Joshi
Chief Marketing Officer
18

ACHIEVEMENTS & TRIUMPHS
Acquired ControlNet (India) Pvt. Ltd. (Goa) Set up a branch office at Edinburgh, UK Started operations at 'Panini' (Pune, India). Nagpur Development Center becomes operational Started operations at 'Pingala Aryabhatta' (Pune, India) Joint investment by Norwest & Gabriel. Investment by Intel Maritius.
Acquired Infospectrum (US). Entered into JV with Sprint Nextel. Acquired Agilent Technologies (France). Entered a strategic partnership with Realcom (Japan).
Investment by Intel 64 LLC.
Formed Persistent Systems & Solutions Ltd. (Pune, India), a wholly owned subsidiary.
1990-91 1998-99 1999-00 2000-01 2001-02
2003-04 2004-05
2005-06
2007-08
2008-09
2009-10
2010-11
Incorporated as Persistent Systems Pvt. Ltd.
Introduced ESOPS for company staff.
Set up Persistent Systems Inc., Wholly owned subsidiary in the USA. Started operations at 'Bhageerath' (Pune, India).
Set up a branch office at Tokyo, Japan
Converted into a Public Limited Company.

Opened a branch office at Rotterdam, The Netherlands.
Acquired Paxonix, Inc. Successful IPO listing on the BSE and NSE. Completes 20 year anniversary.
Formed Persistent Systems Pte. Ltd., wholly owned subsidiary in Singapore. Set up branch offices at Ottawa and Vancouver, Canada.
Source: Company
19

FACILITIES
Bhageerath AryabhataPingala Panini
Senapati Bapat Road, Pune (Operational)
Karve Road, Pune (Operational)
Senapati Bapat Road, Pune (Operational)
Goa
Hinjawadi, Pune
Nagpur
Verna, Goa (Operational)

Source: Investor Presentation - May 2011
Under Construction (Artist Impression)
Under Construction (Artist Impression)
PERSISTENT SYSTEMS SERVICE BOUQUET

Performance Engineering Testing & QA Development Prototyping Usability Engineering Porting Documentation
Research Maintenance Technical Support

Source: Company Red Herring Prospectus
Training Sales Support Deployment
Research: Persistent Systems Ltd. (PSL) tracks new developments in the technology and software world on a constant basis. PSL develops a good understanding of the context and market requirements through this research which enables it to stay ahead of the curve and help customers incorporate new ideas into products. Usability Engineering: Usability engineering is an approach to product development that incorporates direct user feedback throughout the development cycle in order to reduce costs and create products and tools that meet user needs.
20

Prototyping: Prototyping is the process of modeling, where PSL creates either throw-away or reusable software pieces that are used to provide customers with a 'first-look' at how the final product will look. Over the years, PSL has created an in - house pool of prototypes in various domains to speed up any future development in those areas. Development: PSL provides software development services to its customers either by taking complete ownership for an entire software product, or a portion of the product, or PSL operates as an extended software engineering arm of its customers. Testing & Quality Assurance: PSL's capabilities include performing a wide range of testing services requirements testing, architectural and design verification, functionality testing, usability testing, compatibility testing, compliance and certification testing and internationalisation testing - i18N/L10N testing. Performance Engineering: PSL provides a whole host of services to its customers regarding Performance Engineering which include Performance Modeling, Evaluation, Analysis and Optimization. Porting: This is the process of adapting software so that an executable program be created for a computing environment that is different from the one for which it was originally designed. Documentation & Training: PSL provide its customers with user guides and support documentation in connection with the systems they implement. PSL also develops comprehensive training materials for its products. Sales Support, Product Deployment and Technical Support: PSL provides its customers with wide-ranging pre-sales, deployment and after-sales support. It also provides customers with flexible teams to deploy and integrate with their customers' systems. Deployment: PSL helps customers deploy products in their environments'. This also enables PSL to learn about any shortcomings that arise in the product during deployment and can also take feedback back to their engineers. Technical Support: PSL provides 24 x 7 x 365 days support for several of its customers, who are normally experienced systems operators. Hence PSL has a dedicated team comprising software engineers and domain specialists to cater to such support calls. Maintenance: PSL has long-term contracts to provide maintenance services to enhance and optimize deployed software, to correct defects and deficiencies found during field usage as well to add new functionality to improve the software usability and applicability.
21

FINANCIAL STATEMENTS
(INR Mn) (INR Mn)
Profit & Loss Statement Net Sales Personne l Costs Ge neral & Administrative Expe nses Total Expenditure EBITDA De pre ciation EBIT Other Income Profit Before Tax Provision for Tax Net Profit
FY10
FY11
FY12 E
FY13 E
Cash Flow Statement Profit Before Tax De pre ciation Changes in Working Capital Tax Expe nse Cash Flow from Operations Purchase of Fixe d Assets Purchase of Investme nts Cash Flow from Investing Activities
FY10 1,240.7 335.2 126.4 (247.5) 1,238.6 (476.4) (1,141.6) (21.5) (5.5) 1,636.1 163.2 1,733.1 1,917.7 FY10 24.3% 18.8% 19.1% 22.2% 18.0% 36.9%
FY11 1,503.5 423.9 48.1 (342.3) 1,575.3
FY12 E 1,831.0 596.2 (243.1) (573.0) 1,611.1
FY13 E 2,065.8 779.0 (321.6) (613.7) 1,909.5 (750.0) (450.0)
6,011.6 7,758.4 3,687.4 5,123.0 860.5 1,052.4 4,547.9 6,175.4 1,463.6 1,583.1 335.2 423.9
9,983.7 11,630.8 6,875.4 1,206.3 8,081.8 1,902.0 596.2 1,305.7 525.3 1,831.0 573.0 1,258.0 8,097.7 1,279.4 9,377.0 2,253.7 779.0 1,474.7 591.1 2,065.8 613.7
(971.7) (2,100.0) 0.0
(7,089.0) (15,527.8)
(2,528.7) (2,100.0) (1,200.0) (239.7) (40.2) (712.3) 1,917.7 (1,665.7) 999.9 FY11 20.4% 14.9% 18.0% 20.1% 18.7% 27.9% (251.6) (42.8) (294.4) 999.9 (783.2) 216.7 FY12 E 19.1% 13.1% 12.6% 15.8% 14.9% 15.8% (290.4) (49.4) (339.8) 216.7 369.7 586.4 FY13 E 19.4% 12.7% 12.5% 16.1% 15.2% 15.5%
1,128.4 1,159.2 112.3 344.4
Dividends Paid Tax on Dividends Cash Flow from Financing Activities Opening Cash Balance
1,240.7 1,505.3 90.5 107.9
1,150.2 1,397.4
1,452.1
(INR Mn)
Net Increase / Decrease in Cash Closing Cash Balance
Balance Sheet SOURCES OF FUNDS: Share Capital Re serves & Surplus Shareholder's Funds De ferred Tax Liabilitie s Total Liabilities & Equity
FY10 432.0
FY11 434.8
FY12 E 434.8 8,000.0 8,434.7 30.1 8,464.8
FY13 E 434.8 9,112.3 9,547.0 30.1 9,577.1
Financial Ratios Profitability Indicators (%): EBITDA Margin EBIT Margin Ne t Profit Margin RoA RoE RoIC
5,957.9 7,036.3 6,389.9 7,471.1 45.1 30.1 6,435.0 7,501.1
APPLICATION OF FUNDS : Gross Block Less: Accumulate d Depreciation CWIP Net Block Inve stme nts 3,714.8 4,542.8 1,881.2 2,281.5 484.8 604.5 2,318.4 2,865.8 1,561.7 2,500.4 6,642.8 2,877.7 604.5 4,369.5 2,500.4 7,392.8 3,656.7 604.5 4,340.6 2,950.4 Per Share Data: Sundry De btors Cash and Bank Other Curre nt Assets Loans and Advances Current Liabilitie s Net Current Assets Total Assets
Liquidity Ratios: Current Ratio Days Receivable s Days Payable s 2.5 73 104 2.3 69 75 1.8 64 66 2.1 67 64
1,363.3 1,582.1 1,917.7 339.9 637.5 999.9 226.2 869.2
1,922.3 216.7 233.0 969.1 1,806.1 1,535.0 8,464.8
2,345.2 586.4 241.1 1,095.1 2,041.5 2,226.3 9,577.1
Diluted EPS BVPS Valuation Ratios (x): P/E P/B P/S EV/EBITDA
32.1 159.7
34.9 186.8
31.5 210.9
36.3 238.7
1,710.3 1,602.3 2,548.1 2,075.1 6,435.0 7,501.1
9.6 1.9 2.1 6.7
8.9 1.7 1.6 6.8
9.8 1.5 1.2 6.1
8.5 1.3 1.1 5.0
22

RESEARCH RECOMMENDATIONS
Date of Recommendation 2-Aug-11 18-Jul-11 12-Jul-11 30-Jun-11 16-May-11 4-May-11 28-Apr-11 1-Apr-11 31-Mar-11 29-Mar-11 7-Mar-11 28-Feb-11 3-Feb-11 31-Jan-11 12-Jan-11 31-Dec-10 31-Dec-10 31-Dec-10 22-Dec-10 30-Nov-10 30-Nov-10 18-Nov-10 16-Nov-10 3-Nov-10 27-Oct-10 26-Oct-10 29-Sep-10 16-Sep-10 15-Sep-10 14-Sep-10 31-Aug-10 27-Aug-10 30-Jul-10 26-Jul-10 14-Jul-10 9-Jul-10 26-Jun-10 23-Jun-10 19-Jun-10 18-Jun-10 17-Jun-10 12-Jun-10 5-Jun-10 10-May-10 30-Apr-10 16-Apr-10 16-Apr-10 16-Apr-10 7-Apr-10 6-Apr-10 5-Apr-10 Company Name Tamil Nadu News Print Ltd KEC International Ltd. Visa Steel Ltd. Tecpro Systems Ltd. Camson Biotechnologies Ltd. Ganesh Polytex Ltd. CESC Ltd. Unity Infraprojects Ltd. Rolta India Ltd. West Coast Paper Mills Ltd. Deepak Fertilisers & Petrochemicals Ltd. Ceat Ltd. MIC Electronics Ltd. Diamond Power & Infrastructure Ltd. Hathway Cable & Datacom Ltd. Jindal Poly Films Ltd. Allahabad Bank Sasken Communication Tech. Ltd. Banco Product Allcargo Global Logistics Jyoti Structure Pennar Industries HSIL Ltd. IDBI Bank MSP Steel and Power Nakoda Textiles Kajaria Ceramics Gokul Refoils Aqua Logistic Lakshmi Precision Screws BGR Energy System Patel Engineering KPR Mills Ltd. IDBI Bank Opto Circuit BGR Energy System Ltd. Biocon Ltd. Emmbi Polyarns Indian Bank Diamond Power & Infrastructure Ltd. Man Industries Usher Agro Greaves Cotton Indraprastha Gas Ltd. Heidelburg Cement KEC International Ltd. Piramal Glass Ltd. Setco Automative Den Networks Arshiya International Report Type Sector Recommendation Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Accumulate Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Accumulate Hold Accumulate Buy Buy Accumulate Accumulate Buy Accumulate Buy Buy Buy Accumulate Buy Buy Buy Buy Accumulate Accumulate Accumulate Buy Accumulate Buy Recommended Price 117.0 79.0 59.0 250.0 116.0 62.0 311.0 69.0 139.0 77.0 212.0 152.0 109.0 31.6 193.0 164.0 525.0 225.0 168.0 93.0 155.0 137.0 49.0 141.0 171.0 72.0 15.0 70.0 97.3 59.1 79.8 786.0 416.0 156.0 125.0 243.0 697.0 321.0 15.6 221.0 196.0 85.0 79.0 67.0 233.0 59.0 570.0 97.0 90.0 197.0 204.0 Target 161.0 104.0 75.0 300.0 156.0 102.0 411.0 86.0 191.0 95.0 351.0 202.0 149.0 51.0 257.0 227.0 620.0 304.0 226.0 149.0 233.0 171.0 63.0 171.0 228.0 114.0 23.0 88.0 109.0 60.8 91.8 1020.0 480.0 181.0 142.0 293.0 820.0 387.0 26.0 276.0 226.0 102.0 110.0 82.0 290.0 60.0 655.5 111.6 135.0 226.6 291.0
Initiating Coverage Paper & Paperboard Initiating Coverage Power Transmission Investment Idea Investment Idea Investment Idea Metal Material Handling Agri Biotech
Initiating Coverage Waste Recycling Initiating Coverage Power Investment Idea Investment Idea Investment Idea Infrastructure IT / ITES Paper & Paperboard
Hindusthan National Glass & Industries Ltd. Initiating Coverage Glass Initiating Coverage Fertilisers Investment Idea Auto Ancillaries Initiating Coverage Led Display & Lighting Initiating Coverage Power Initiating Coverage Media Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Packaging Banking IT / ITES Shipping & Logistics Power Steel
Initiating Coverage Auto
Initiating Coverage Building Product Initiating Coverage Banking Initiating Coverage Steel Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Textiles Ceramic Tiles Food Processing Logistic Fastner
Initiating Coverage Power Initiating Coverage Infrastructure Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Investment Idea Textiles Banking Capital Goods Pharmaceuticals Packaging Banking Power Ancillary Steel Pipes Food Processing Construction Cement Power Transmission Packaging Auto Ancillaries Media Logistic
Initiating Coverage Healthcare
Initiating Coverage Gas Distribution
23

Unicon Investment Ranking Methodology
Rating Return Range Buy >= 20% Accumulate 10% to 20% Hold -10% to 10% Reduce -10% to -20% Sell <= -20%
Disclaimer
This document has been issued by Unicon Financial Intermediaries Pvt Ltd. (UNICON) for the information of its customers only. UNICON is governed by the Securities and Exchange Board of India. This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. The information and opinions contained herein have been compiled or arrived at based upon information obtained in good faith from public sources believed to be reliable. Such information has not been independently verified and no guarantee, representation or warranty, express or implied is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document has been produced independently of any company or companies mentioned herein, and forward looking statements; opinions and expectations contained herein are subject to change without notice. This document is for information purposes only and is provided on an as is basis. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer, or solicitation of an offer, to buy or sell or subscribe to any securities or other financial instruments. We are not soliciting any action based on this document. UNICON, its associate and group companies its directors or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this document, including but not restricted to, fluctuation in the prices of the shares and bonds, reduction in the dividend or income, etc. This document is not directed to or intended for display, downloading, printing, reproducing or for distribution to or use by any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or would subject UNICON or its associates or group companies to any registration or licensing requirement within such jurisdiction. If this document is inadvertently sent or has reached any individual in such country, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purpose without prior written approval of UNICON. This document is for the general information and does not take into account the particular investment objectives, financial situation or needs of any individual customer, and it does not constitute a personalised recommendation of any particular security or investment strategy. Before acting on any advice or recommendation in this document, a customer should consider whether it is suitable given the customer's particular circumstances and, if necessary, seek professional advice. Certain transactions, including those involving futures, options, and high yield securities, give rise to substantial risk and are not suitable for all investors. UNICON, its associates or group companies do not represent or endorse the accuracy or reliability of any of the information or content of the document and reliance upon it is at your own risk. UNICON, its associates or group companies, expressly disclaims any and all warranties, express or implied, including without limitation warranties of merchantability and fitness for a particular purpose with respect to the document and any information in it. UNICON, its associates or group companies, shall not be liable for any direct, indirect, incidental, punitive or consequential damages of any kind with respect to the document. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Unicon Financial Intermediaries Pvt Ltd.
Address: Wealth Management Unicon Financial Intermediaries Pvt. Ltd. 3rd Floor, VILCO Center, Opp Garware House, 8, Subhash Road, Vile Parle (East), Mumbai - 400057. Ph: 022-33901234 Email: wealthresearch@unicon.in Visit us at www.unicon.in
24

Persistent Systems LTD - Initiating Coverage

Caricato da

Informazioni sul documento

Descrizione originale:

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Persistent Systems LTD - Initiating Coverage

Caricato da

Copyright:

Formati disponibili

Sector : Information Technology

Long Term Investment Call

Persistent Systems Ltd.

FY10 6,012 1,464 24.3% 1,150 19.1% 32.1

FY11 7,758 1,583 20.4% 1,397 18.0% 34.9

FY12 E 9,984 1,902 19.1% 1,258 12.6% 31.5

FY13 E 11,631 2,254 19.4% 1,452 12.5% 36.3

FY10 9.6 1.9 6.7 18.0% 36.9%

FY11 8.9 1.7 6.8 18.7% 27.9%

FY12 E 9.8 1.5 6.1 14.9% 15.8%

FY13 E 8.5 1.3 5.0 15.2% 15.5%

Share Holding Pattern Promoters FIIs DIIs Public

Relative Price Performance

Source: Bloomberg, Unicon Research

Unicon Wealth Management www.unicon.in

Persistent Systems Ltd.

Unicon Wealth Management www.unicon.in

Persistent Systems Ltd.

Key Industry Verticals:

Revenue Break - up Industry wise

Persistent Systems Ltd.

20% 0% FY08 FY09 FY10 FY11

Source: Company, Unicon Research

Unicon Wealth Management www.unicon.in

Persistent Systems Ltd.

Source: Company, Unicon Research

Unicon Wealth Management www.unicon.in

Persistent Systems Ltd.

Development (37%) USD 16.7 - 17.8 Billion

*Other Developed (12%) USD 5.4 - 5.8 Billion

New Products (25%) USD 11.3 - 12.0 Billion

QA / Testing (31%) USD 14.0 - 14.9 Billion

**Emerging Geo (15%) USD 6.8 - 7.2 Billion

Support / Sustenance (23%) USD 10.4 - 11.0 Billion

Unicon Wealth Management www.unicon.in

Persistent Systems Ltd.

Product Development Lifecycle

Unicon Wealth Management www.unicon.in

Persistent Systems Ltd.

Outsourced Product Development

People / Money (Variable)

People / Money (Fixed)

Unicon Wealth Management www.unicon.in

Persistent Systems Ltd.

Worldwide R&D / PE Services Offshore Revenue

Worldwide R&D / PE Services Spending

Growth (%) 25.00% 20.00% 15.00% 10.00%

Unicon Wealth Management www.unicon.in

Persistent Systems Ltd.

PSLs Services across the Product Development Lifecycle

Early Market Growth Market

Unicon Wealth Management www.unicon.in

Persistent Systems Ltd.

Intellectual Property (IP) driven Revenue to improve Operating Profit Margins

Unicon Wealth Management www.unicon.in

Persistent Systems Ltd.

Top 1 / 5 / 10 Client Contributions

No. of Large Clients (> USD 3 mn Revenue)

Source: Company, Unicon Research

Unicon Wealth Management www.unicon.in

Persistent Systems Ltd.

Revenue & Revenue Growth