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Company Update | IT

December 19, 2012

Analyst Meet Update
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,, 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 `48.0 and `53.9, respectively. We continue to remain positive on the stock and maintain Accumulate rating on it with a target price of `540.

CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code IT 1,964 (308) 0.9 515/298 129,485 10 19,476 5,930 PERS.BO PSYS@IN

`491 `540
12 Months

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 39.0 32.1 2.6 26.4

Abs. (%) Sensex Persistent

3m 6.1 20.0

1yr 28.3 64.0

3yr 16.5 -*

Note: * Listed on April 6,2010

Key financials (Indian GAAP, Consolidated)
Y/E March (` cr) Net sales % chg Net profit % chg EBITDA margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) FY2010 601 1.2 115 74.0 24.3 32.1 15.3 2.8 18.0 17.5 2.7 11.0 FY2011 776 29.1 140 21.5 20.4 34.9 14.1 2.6 18.7 15.2 2.1 10.3 FY2012E 1,000 28.9 142 1.5 23.2 35.4 13.9 2.3 16.9 20.2 1.6 7.0 FY2013E 1,277 27.6 192 35.5 26.8 48.0 10.2 1.9 19.0 26.1 1.2 4.5 FY2014E 1,398 9.5 216 12.3 25.2 53.9 9.1 1.6 17.9 22.1 1.0 4.0

Ankita Somani
+91 22 39357800 Ext: 6819

Source: Company, Angel Research

Please refer to important disclosures at the end of this report


Persistent | Company Update

Exhibit 2: Recommendation summary
Company HCL Tech Hexaware Infosys KPIT Cummins Mahindra Satyam Mindtree Mphasis NIIT Persistent TCS Tech Mahindra Wipro Reco Neutral Buy Accumulate Buy Accumulate Accumulate Neutral Buy Accumulate Accumulate Accumulate Accumulate CMP (`) 641 89 2,295 189 107 106 707 383 31 491 1,233 947 386 Tgt. price (`) 123 2,573 202 132 115 747 36 540 1,410 1,070 421 Upside (%) 37.5 12.1 6.6 23.5 8.2 5.7 16.5 10.0 14.4 13.0 9.2 FY2014E EBITDA (%) 18.1 19.8 30.4 17.3 15.0 18.8 17.7 16.9 10.9 25.2 29.1 18.4 20.0 FY2014E P/E (x) 13.4 8.0 13.4 9.4 8.9 10.2 9.5 10.3 5.0 9.1 16.2 9.3 13.7 FY2011-14E EPS CAGR (%) 10.1 7.8 5.6 11.6 14.5 0.7 11.6 (0.5) (2.5) 15.0 12.0 5.0 7.4 FY2014E EV/Sales (x) 1.5 0.9 2.5 0.6 0.8 1.1 0.9 0.8 0.2 1.0 3.3 1.7 1.6 FY2014E RoE (%) 22.0 22.8 23.1 14.0 19.8 22.9 19.7 12.6 14.1 17.9 29.1 21.0 17.9

Infotech Enterprises Accumulate

Source: Company, Angel Research

December 19, 2012


Persistent | Company Update

Research Team Tel: 022 - 39357800



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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Persistent No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

December 19, 2012


Persistent | Company Update
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Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Viral Shah Sharan Lillaney V Srinivasan Yaresh Kothari Ankita Somani Sourabh Taparia Bhupali Gursale Vinay Rachh Amit Patil Shareen Batatawala Twinkle Gosar Tejashwini Kumari Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Tejas Vahalia Dilip Patel Research Editor Production VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive Head - Derivatives Sr. Technical Analyst Technical Analyst Technical Analyst VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Sr. Analyst (Infrastructure) Analyst (Mid-cap) Analyst (Cement, FMCG) Analyst (Automobile) Analyst (IT, Telecom) Analyst (Banking) Economist Research Associate Research Associate Research Associate Research Associate Research Associate


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December 19, 2012