PERSISTENT SYSTEMS

EQUITY RESEARCH - MODEL

DISCUSSION ON EQUITY RESEARCH MODEL - PERSISTENT SYSTEMS
Investment stocks

fundamental approach

decision should I invest in the stock at the CMP

value of company = Intrinsic Value > CMP more than 15%

Project Company
starting t = 0 does not start at t =0
life is finite life is infinite (going concern)
assumptions were given to us we have figure out the drivers and take assumptions

IMPORTANT SECTIONS OF AN ANNUAL REPORT --> INVESTMENT ANALYSIS

1 CHAIRMAN'S SPEECH VISION & MISSION
2 DIRECTOR'S REPORT OPERATIONAL EXCELLENCE
3 MANAGEMENT DISCUSSION & ANALYSIS (MDA) COMMENTARY ON LATEST R
4 INDUSTRY REPORT DEMAND & SUPPLY OF THE S
5 FINANCIAL STATEMENT DATA (IS/BS/CFS)

Total Revenue = Price x Quantity

ANALYSIS OF MARUTI REVENUES
ASP (P)

Maruti x

Number of cars sold (Q)

ANALYSIS OF AIRTEL REVENUES

ARPU = MONTHLY BILL
MOBILE
SUBSCRIBERS

AIRTEL BROADBAND

DTH

ANALYSIS OF IT SERVICES REVENUES

HOSPITAL IN USA
WANTS SOFTWARE FOR MGMT.
 PERSISTENT IS THE VENDOR TO BUILD THE SOFTWARE

NO SALEABLE INTELLECTUAL PROPERTY

SO CHARGE THE CLIENT FOR EFFORT

HOW TO MEASURE THE EFFORT

MAN DAYS OR MAN MONTHS OR MAN HOURS

METRIC TO REVENUE ESTIMATION

NO. OF MONTHS TOTAL TOTAL

SERVICES PROVIDED DEVELOPE OF EFFORT RATE PER MONTH REVENUE
AT RS EFFORT MONTHS $/MONTH (USD)
ONSITE = GDC 1 10 10 10000 100000
OFFSHORE = INDIA 10 10 100 1000 100000
200000
50
10,000,000

REVENUE MODEL - PERSISTENT SYSTEMS

GDC - BILLING RATE (USD/MONTH)

GDC GDC - MONTHS BILLED

SERVICES
PERSISTENT INDIA INDIA - BILLING RATE (USD/MONTH)

INDIA - MONTHS BILLED

IP LED
IP - BILLING RATE (USD/MONTH)

IP- MONTHS BILLED

PERFECT COMPETITION
ENTRY BARRIER LOW
INFLUENCE OF PERSISTENT ON BILLING RATE NOT THERE

VALUATION OF COMPANY

DISCOUNTED CASH FLOW VALUATION RELATIVE VALUATION

PRESENT VALUE OF FUTURE CASH FLOWS IS FIRM VALUE LAW OF ONE PRICE
BASED ON VALUATION RATIO
FREE CASH FLOW TO FIRM (FCFF) = THE AMOUNT OF CASH P/E, EV/REVENUE, P/S,P/BV
GENERATED FOR ALL STAKEHOLDERS OF FIRM
STAKEHOLDERS = DEBT + EQUITY FIND THE RATIOS FOR PEERS
THIS IS ALSO CALLED AS ENTERPRISE VALUE (EV)
EV = DEBT + EQUITY - CASH FIND THE INDUSTRY MEDIAN
 25TH , 75TH PERCENTILE
FCFF = EBIT*(1-TAX) + D&A - PURCHASE OF ASSETS + CHG IN WC
USE THE INDUSTRY MEDIAN
DICOUNT RATE FOR FCFF IS WACC OR PERCENTILE VALUE
(CONSIDERING BOTH STAKEHOLDERS , DEBT & EQUITY) TO FIND TARGET PRICE OF O
WACC = We * Ke + Wd * Kd

We = MARKET VALUE OF EQUITY / TOTAL CAPITAL

MARKET VALUE OF EQUITY = PRICE OF STOCK * NUMBER OF SHARES

Wd = 1 - We
Kd = INT RATE * (1 - TAX RATE)
Ke = Rf + BETA*(Rm - Rf) <=== CAPITAL ASSET PRICING MODEL (CAPM)

EV = PV OF ALL FCFF DISCOUTNED AT WACC

MATHEMAICALLY , EV WOULD BE

WE CAN ESTIMATE THE FCFF FOR NEXT 6 YEARS USING OUR FORECASTS
FOR THE REMAINING YEARS TILL INFINITE WE USE 2 STAGE BASED H-MODEL
OF VALUATION
THIS MODEL CONSIDERS THE BUSINESS LIFE CYCLE STAGES AND MODERATES THE
GROWTH RATE
STAGE -1 : LINEAR DECLINE IN GROWTH RATE OF PROFITS OR CASH FLOWS
STAGE -2 : TERMINAL VALUATION BASED ON GORDON GROWTH MODEL

GORDON GROWTH MODEL

PV = A/r

FROM EV WE CAN ESTIMATE THE EQUITY VALUE

AND THE INTRINSIC PRICE TO TAKE INVESTMENT DECISION
EQUITY VALUE = EV - DEBT + CASH
INTRINSIC PRICE = EQUITY VALUE / NUMBER OF SHARES
and take assumptions

ISION & MISSION

PERATIONAL EXCELLENCE
OMMENTARY ON LATEST RESULTS
EMAND & SUPPLY OF THE SECTOR
 <== TOTAL REVENUE ($)
<== INR/USD
<== REVENUE IN INR MILLION

ELATIVE VALUATION
AW OF ONE PRICE
ASED ON VALUATION RATIOS
/E, EV/REVENUE, P/S,P/BV

IND THE RATIOS FOR PEERS

IND THE INDUSTRY MEDIAN OR

5TH , 75TH PERCENTILE

SE THE INDUSTRY MEDIAN

OR PERCENTILE VALUE
O FIND TARGET PRICE OF OUR CASE
 REVENUE
DRIVERS

IS

COST DRIVERS

CFS

ASSET
SCHEDULE

BS

BALANCE SHEET
RATIO

HISTORICAL
DATA

ANNUAL
REPORT
ESTIMATES OF
CASH FLOW VALUATION

Intirinsic Price >

CMP

+15% BUY
FORECASTS INVESTMENT
DECISION
 DCF

RELATIVE
VALUATION
Persistent Systems
Layout
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)
Date Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18
Year 2013 - A 2014 - A 2015 - A 2016 - A 2017 - A 2018 - A
Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
2019 - E 2020 - E 2021 - E 2022 - E 2023 - E 2024 - E
Persistent Systems
Income Statement
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)
Date Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
Year 2013 - A 2014 - A 2015 - A 2016 - A 2017 - A

Revenue from Operations 12,945 16,692 18,913 23,123 28,784

Other Income 286 310 938 773 958
Total Revenue 13,231 17,002 19,851 23,896 29,743

Employee Benefit expense 7,188 9,090 11,114 14,068 18,008

Cost of technical professionals 536 906 1,090 1,587 1,818
COGS 7,724 9,995 12,203 15,654 19,827

Gross Profit 5,507 7,006 7,647 8,242 9,916

Other Expenses 2,094 2,553 2,806 3,554 4,304

EBITDA 3,413 4,453 4,842 4,688 5,612

Depreciation 783 1,026 939 990 1,490

EBIT 2,630 3,427 3,903 3,698 4,122

Interest Expense 0 1 3 1 1
EBT 2,630 3,427 3,900 3,697 4,121

Exceptional Items - (114)

PBT 2,630 3,427 3,900 3,697 4,007

Tax Expense 754 934 993 924 992

PAT 1,876 2,493 2,906 2,773 3,015

EPS
Basic 48.62 32.04 36.84 34.74 37.68
Diluted 46.90 31.16 36.33 34.66 37.68

Number of Shares
Basic 38.59 77.80 78.89 79.82 80.01
Diluted 40.00 80.00 80.00 80.01 80.01
Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
2018 - A 2019 - E 2020 - E 2021 - E 2022 - E 2023 - E 2024 - E

30,337 32,839 37,272 42,303 48,015 54,499 61,860

1,191 1,176 1,572 2,026 2,580 3,223 4,003
31,528 34,014 38,844 44,329 50,595 57,722 65,863

18,316 20,186 22,911 26,004 29,514 33,500 38,025

3,181 2,759 3,131 3,554 4,034 4,578 5,197
21,497 22,944 26,042 29,557 33,548 38,079 43,222

10,031 11,070 12,802 14,772 17,047 19,644 22,641

4,153 4,703 5,338 6,058 6,876 7,805 8,859

5,878 6,367 7,464 8,714 10,170 11,839 13,782

1,585 1,670 1,755 1,891 2,073 2,300 2,573

4,293 4,697 5,709 6,823 8,097 9,538 11,209

1 - - - - - -
4,293 4,697 5,709 6,823 8,097 9,538 11,209

- - - - - - -
4,293 4,697 5,709 6,823 8,097 9,538 11,209

1,062 1,162 1,412 1,688 2,003 2,359 2,772

3,231 3,536 4,297 5,135 6,095 7,179 8,437

40.39 44.20 53.72 64.20 76.19 89.75 105.47

40.39 44.20 53.72 64.20 76.19 89.75 105.47

79.99 79.99 79.99 79.99 79.99 79.99 79.99

79.99 79.99 79.99 79.99 79.99 79.99 79.99
Persistent Systems
Balance Sheet
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)
Date Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
Year 2013 - A 2014 - A 2015 - A 2016 - A 2017 - A

Property, Plant and Equipment 2,800 2,785 3,021 2,968 2,768

Capital work-in-progress 1,174 307 40 24 48
Goodwill - 23 24 78 76
Other Intangible assets 702 1,269 995 1,325 2,515
Intangible assets under development - - - 242 241
Investments 173 823 2,308 1,469 2,339
Loans 199 138 58 86 131
Other non-current financial assets - 13 870 922
Deferred tax assets (net) 190 261 244 129 306
Other non-current assets 524 459 81 649 72
Total Non Current Assets 5,763 6,066 6,784 7,840 9,421

Investments 3,116 4,071 4,661 4,914 4,500

Trade receivables 2,451 3,028 3,586 4,275 4,754
Cash and Cash equivalents 561 957 987 1,400 1,461
Other bank balances - - 526 39 48
Loans 346 410 11 9 14
Other current financial Assets - - 909 1,764 2,316
Current tax assets (net) - - 20 153 94
Other current assets 434 902 397 803 855
Total Current Assets 6,908 9,368 11,097 13,358 14,043

Total Assets 12,671 15,434 17,881 21,199 23,464

Equity share capital 400 400 800 800 800

Other equity 9,783 11,823 13,901 15,778 18,193
Total Equity 10,183 12,223 14,701 16,578 18,993

Borrowings 14 32 26 27 22
Deferred payment liabilities 559 301 - - 20
Provisions 80 93 116 124 146
Deferred tax liabilities (net) - 1 3 - 111
Total Non Current Liabilities 653 426 145 151 298

Trade Payables 319 434 497 1,599 1,209

Deferred Payment Liabilities - - - 4 1
Other Financial liabilities - - 535 535 453
Other Current Liabilities 468 1,140 730 1,108 1,119
Provisions 1,048 1,211 1,274 1,224 1,391
Total Current Liabilities 1,835 2,785 3,036 4,469 4,173

Total Liabilities and Shareholders Equity 12,671 15,434 17,881 21,199 23,464

Checksum (ASSETS = LIABILITY + EQUITY) - - - - -

Balance Sheet Ratios

X-axis 1 2 3 4
Rec Days y-axis 59.91 63.82 62.04 57.25
Payable Days y-axis 13.74 13.92 24.44 25.85

Rec Days =365

RTR

RTR =Sales
Avg Rec
Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
2018 - A 2019 - E 2020 - E 2021 - E 2022 - E 2023 - E 2024 - E

2,581 2,761 3,105 3,596 4,227 4,995 5,905

8 8 8 8 8 8 8
77 77 77 77 77 77 77
2,464 2,464 2,464 2,464 2,464 2,464 2,464
45 45 45 45 45 45 45
2,881 2,881 2,881 2,881 2,881 2,881 2,881
143 143 143 143 143 143 143
37 37 37 37 37 37 37
642 642 642 642 642 642 642
92 92 92 92 92 92 92
8,969 9,148 9,492 9,984 10,614 11,383 12,292

5,916 5,916 5,916 5,916 5,916 5,916 5,916

4,847 5,390 6,007 6,677 7,434 8,258 9,185
1,344 3,792 6,595 10,016 13,990 18,806 24,431
1,070 1,070 1,070 1,070 1,070 1,070 1,070
7 7 7 7 7 7 7
2,758 2,758 2,758 2,758 2,758 2,758 2,758
114 114 114 114 114 114 114
1,563 1,563 1,563 1,563 1,563 1,563 1,563
17,620 20,611 24,031 28,122 32,853 38,492 45,045

26,589 29,759 33,523 38,105 43,467 49,875 57,337

800 800 800 800 800 800 800

20,472 23,153 26,413 30,307 34,929 40,374 46,773
21,272 23,953 27,213 31,107 35,729 41,174 47,573

17 17 17 17 17 17 17
- - - - - - -
160 160 160 160 160 160 160
270 270 270 270 270 270 270
447 447 447 447 447 447 447

1,673 2,162 2,667 3,354 4,094 5,057 6,121

- - - - - - -
396 396 396 396 396 396 396
1,201 1,201 1,201 1,201 1,201 1,201 1,201
 1,599 1,599 1,599 1,599 1,599 1,599 1,599
4,870 5,359 5,864 6,551 7,291 8,254 9,318

26,589 29,759 33,523 38,105 43,467 49,875 57,337

- - - - - - -

5 6 7 8 9 10 11
57.76 56.89 55.81 54.72 53.63 52.55 51.46
24.47 30.50 33.84 37.18 40.52 43.86 47.20

Rec Days =365 * Avg. Rec

Sales

=> Rec Days * Sales =365*Avg. Rec

=> Rec Days * Sales = Op Rec + Cl Rec

365 2

=> Rec Days * Sales * 2 = Op Rec + Cl Rec

365

=> Rec Days * Sales * 2 - Op Rec =Cl Rec

365

=> Pay Days * COGS * 2 - Op Pay =Cl Pay

365
Persistent Systems
Cash Flow Statement
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)
Date Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18
Year 2013 - A 2014 - A 2015 - A 2016 - A 2017 - A 2018 - A

Profit before tax 2,630 3,427 3,900 3,697 4,007 4,293

Adjustments for:
Interest income (93) (91) (117) (148) (145) (162)
Finance costs 0 1 3 1 1 1
Dividend income (155) (150) (233) (227) (189) (171)
Depreciation and amortization ex 783 1,026 939 990 1,490 1,585
Amortization of lease premium - - - 1 1 1
Unrealised exchange loss/ (gain) ( 9 58 (25) 68 88 (124)
Change in foreign currency transla 13 (34) (36) (37) (67) (28)
Exchange loss/ (gain) on derivative (90) 20 (11) 1 (70) 77
Exchange (gain) / loss on translati (1) 19 (11) (8) (1) (101)
Donations in kind - - - - 0 0
Bad debts 31 46 99 205 115 184
Provision for doubtful receivables 94 27 (56) (196) 26 (151)
Employee stock compensation exp 28 - 32 34 60 4
Provision for doubtful deposits a - 0 2 0 - 27
Provision for diminution in value - 0 - - 8 -
Remeasurements of the defined benef - - - 223 (61) 148
Advances written off - 4 - 30 - (18)
Excess provision in respect of earl (2) (2) (6) (0) (3) (24)
(Gain)/ loss on fair valuation of m - - - 14 (191) 19
(Profit) on sale of investments (net (13) (55) (85) (228) (94) (187)
(Profit) on sale of fixed assets (net (4) 3 (3) (9) (2) (2)
Operating profit before working capi 3,229 4,299 4,393 4,410 4,973 5,370

Movements in working capital :

(Increase) / Decrease in non-curre (82) (112) (18) 176 (50) (1)
Decrease / (Increase) in other non - - - (51) 5 (3)
(Increase) in other current financia - - - - (163) 72
(Increase) in other current assets (160) (344) (157) (1,205) (52) (696)
(Increase) in trade receivables (609) (689) (576) (645) (688) 157
(Decrease) / Increase in trade payab 130 501 202 924 (302) 306
Increase / (Decrease) in provisions 252 129 273 (57) 189 222
Working Capital Change (470) (514) (276) (857) (1,062) 56
Operating profit after working capita 2,759 3,785 4,117 3,553 3,912 5,426
Direct taxes paid = Tax Expense (596) (977) (1,001) (1,012) (1,048) (1,214)
Net cash generated from operating act 2,163 2,808 3,116 2,541 2,864 4,212

Payment towards capital expenditure ( (1,156) (581) (957) (1,659) (2,176) (655)
Proceeds from sale of fixed assets 4 3 3 12 7 3
Payment towards acquisition of subsi - (32) - (307) - (408)
Purchase of tax free bonds - - - (243) (514) (595)
Proceeds from sale of tax free bonds - - - 456 654 -
Purchase of non-current investments (50) (651) (6) (73) - -
Investments in mutual funds (10,908) (12,492) (15,451) (13,397) (10,789) (15,502)
Proceeds from sale / maturity of mut 9,846 11,591 13,702 14,023 10,472 14,290
Proceeds from sale of other current - - - 20 - -
Investments in bank deposits having (520) (24) (15) (523) (10) (326)
Investments in Deposit with financial (28) - - (300) (135) (595)
Maturity of bank deposits having ori 921 42 100 400 - 42
Inter corporate deposits refunded 50 7 0 0 0 0
Interest received 101 28 74 202 82 101
Dividends received 29 150 233 227 189 171
Net Cash (used in) investing activities (1,711) (1,958) (2,315) (1,162) (2,219) (3,474)

(Repayment of) long term borrowing 8 18 13 (15) (5) (5)

Interest paid - - (2) (0) (2) (2)
Dividends paid (340) (440) (560) (1,040) (480) (800)
Tax on dividend paid (55) (75) (107) (212) (98) (150)
Net cash (used in) Financing activities (387) (497) (657) (1,266) (584) (956)

Net Change in Cash 64 353 144 113 61 (218)

Cash BOP 433 499 833 988 1,401 1,463

Cash EOP 499 833 988 1,401 1,463 1,345

Cash acquired on Acquisition - - - 293 - -

Effect of exchange differences 1 (19) 11 8 1 101

On unpaid dividend accounts 1 1 1 1 1 1

Cash From Balance Sheet 561 957 987 1,400 1,461 1,344

Cash In Deposits 63 125 - (0) - -

IAS 21 Exchange Rate Diff

Date US Rate India

1-Mar 200 62 12400
1-Jul 200 64 12800
400
Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
2019 - E 2020 - E 2021 - E 2022 - E 2023 - E 2024 - E

4,697 5,709 6,823 8,097 9,538 11,209

1,670 1,755 1,891 2,073 2,300 2,573

6,367 7,464 8,714 10,170 11,839 13,782

(543) (617) (669) (757) (824) (927)

489 506 687 740 963 1,064

(54) (112) 18 (18) 139 137

6,313 7,352 8,731 10,153 11,978 13,919
(1,162) (1,412) (1,688) (2,003) (2,359) (2,772)
5,151 5,940 7,044 8,150 9,619 11,147

(1,849) (2,099) (2,382) (2,704) (3,069) (3,483)

(1,849) (2,099) (2,382) (2,704) (3,069) (3,483)

(719) (874) (1,044) (1,240) (1,460) (1,716)

(135) (164) (196) (233) (274) (322)
(854) (1,038) (1,241) (1,472) (1,734) (2,038)

2,448 2,803 3,421 3,974 4,816 5,625

1,345 3,793 6,596 10,017 13,992 18,807

3,793 6,596 10,017 13,992 18,807 24,432

1 1 1 1 1 1

3,792 6,595 10,016 13,990 18,806 24,431

- - - - - -

Cl Cash CFS Cash In Deposit

Total Cash with the co.

Cash in BS Unpaid dividend
Persistent Systems
Revenue Drivers
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)
Date Mar-13 Mar-14 Mar-15
Year 2010 - A 2011 - A 2012 - A 2013 - A 2014 - A 2015 - A

Method -1 (y/y % Growth)

Revenue from Operations 12,945 16,692 18,913
y/y % growth 29% 13%

Method-2 (CAGR %)
Revenue from Operations 6,012 7,758 10,003 12,945 16,692 18,913
CAGR % - 8 Years FV =PV * (1+R)^n R = (FV/PV)^(1/n)-1

Method-3 (Segment Analysis)

Revenue % By Geography
North America 85.60% 82.50% 84.8% 85.1% 85.5%
Europe 5.90% 7.30% 6.5% 5.4% 6.7%
India 0.0% 0.0% 0.0% 0.0% 0.0%
ROW 8.50% 10.20% 8.7% 9.5% 7.8%
ROW + India 8.5% 10.2% 8.7% 9.5% 7.8%

Segment Revenue
North America 6,641 8,253 10,977 14,204 16,170
Europe 458 730 841 901 1,267
ROW + India 659 1,020 1,126 1,586 1,475
Total Revenue 7,758 10,003 12,945 16,692 18,913

Segment Revenue CAGR% - 7 Years

North America
Europe
ROW + India
Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23
2016 - A 2017 - A 2018 - A 2019 - E 2020 - E 2021 - E 2022 - E 2023 - E

23,123 28,784 30,337 34,869 40,078 46,064 52,945 60,855

22% 24% 5% 15% 15% 15% 15% 15%

23,123 28,784 30,337 36,862 44,789 54,422 66,126 80,348

22% 22% 22% 22% 22% 22%
22%

85.5% 86.40% 83.50%

6.5% 5.50% 7.50%
6.7% 5.50% 6.30%
1.3% 2.60% 2.70%
8.0% 8.1% 9.0%

19,770 24,870 25,331 30,670 37,134 44,961 54,437 65,910

1,503 1,583 2,275 2,861 3,598 4,524 5,688 7,153
1,850 2,332 2,730 3,345 4,097 5,019 6,149 7,533
23,123 28,784 30,337 36,876 44,829 54,504 66,274 80,596

21% 21% 21% 21% 21% 21%

26% 26% 26% 26% 26% 26%
23% 23% 23% 23% 23% 23%
Mar-24
2024 - E

Forecasting:-
69,945 1 Taking past behaviour of the data, and using it for the future forec
15% 2 We can take the avg of the latest relevant data, and can keep the a
3 We can take moving average

97,628
22%

79,802
8,994
9,228
98,024

21%
26%
23%
a, and using it for the future forecasting
relevant data, and can keep the assumption for the future constant
Persistent Systems
Revenue Driver - Price * Quantity Method Economic Method
(All numbers in INR Million, Except per share data) Revenue
(Red for assumptions, Blue for Acutal data and Black for Calculations)
Date Mar-13 Mar-14 Mar-15 Mar-16
Year 2013 - A 2014 - A 2015 - A 2016 - A

Revenue From operations in USD Mn 238 274 309 352

Revenue from Operations in INR Mn 12,945 16,692 18,913 23,123

Average Exchange Rate (INR/USD) 3% 54.4 60.9 61.3 65.8

Reveune Mix
Services 82.8% 82.0% 80.9% 78.9%
IP Led 17.2% 18.0% 19.1% 21.1%

Revenue By Delivery Centers

Global development Centers 18.2% 20.9% 24.8% 28.0%
India 64.6% 61.1% 56.1% 50.9%
IP Led 17.2% 18.0% 19.1% 21.1%

Revenue (INR Mn)

Global development Centers
India
IP Led
Revenue From Operations
y/y growth %

Employee Details
Technical 6,540 7,349 7,861 8,618
Sales & BD 99 150 224 201
Others 331 358 421 445
Total 6,970 7,857 8,506 9,264

Team Addition 887 649 758

% Team Added 12.7% 8.3% 8.9%

Technical team Added 809 512 757

Technical as % Total Team Added 91.2% 78.9% 99.9%

Efforts and Utilisation Mix

Billable Person Months (no of person * 12) 55,541 62,091 64,248 65,553
GDC 3,718 4,585 5,754 7,682
India 51,823 57,506 58,493 57,871
Billed Person Months (no of person * 12) 41,176 44,033 46,094 48,950
GDC 3,294 3,980 5,113 6,623
India 37,882 40,053 40,981 42,327

Utlilisation %
Total 74.1% 70.9% 71.7% 74.7%
GDC 88.6% 86.8% 88.9% 86.2%
India 73.1% 69.7% 70.1% 73.1%

IP Led Person Months (no of person * 12) 8,974 9,148 10,207 13,509

% Billable Team Deployed at

GDC 6.7% 7.4% 9.0% 11.7%
India 93.3% 92.6% 91.0% 88.3%

Development Team
Billed Software Professionals
Billable Software Professionals/Service 4,628 5,174 5,354 5,463
IP-Led Professionals 748 762 851 1,126
Trainees 1,164 1,412 1,656 2,030
As % Technical Team
Billed Software Professionals
Billable Software Professionals 70.8% 70.4% 68.1% 63.4%
IP-Led Professionals 11.4% 10.4% 10.8% 13.1%
Trainees 17.8% 19.2% 21.1% 23.5%

Linear Revenue / Billed Person Month (USD/PPM)

GDC 13,119 14,416 14,952 14,891
India 4,057 4,178 4,222 4,223
IP-Led 4,558 5,393 5,774 5,492

Number of Hours worked / Day 8 8 8 8

Number of Days worked / Month 20 20 20 20

Billing Rate USD/Hour

GDC 2% 81.99 90.10 93.45 93.07
India 5% 25.36 26.11 26.39 26.39
IP-Led 5% 28.49 33.70 36.09 34.33

Billing Rate INR/Hour

GDC
India
IP-Led

Linear Revenue / Billed Person Month (INR/PPM)

GDC
India
 IP-Led

Other Income

Other Income 286 310 938 773

Cash BOP + Current Investments 3,549 4,570 5,494 5,902
Other Income Rate % 8.1% 6.8% 17.1% 13.1%
conomic Method
= Unit Sold * Per unit Price

Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

2017 - A 2018 - A 2019 - E 2020 - E 2021 - E 2022 - E 2023 - E

429 471 483 532 586 646 712

28,784 30,337 32,839 37,272 42,303 48,015 54,499

67.1 64.5 68.0 70.0 72.1 74.3 76.5

72.0% 74.4%
28.0% 25.6%

26.8% 32.0%
45.2% 42.4%
28.0% 25.6%

8,808 8,329 8,816 9,330 9,872 10,444 11,048

193 211
459 436
9,460 8,976 9,471 9,993 10,544 11,125 11,739

196 (484) 495 522 551 581 613

2.1% -5.1% 5.5% 5.5% 5.5% 5.5% 5.5%

190 (479) 487 514 542 572 604

96.9% 99.0% 98.4% 98.4% 98.4% 98.4% 98.4%

68,760 71,206 72,096 76,298 80,732 85,410 90,346

8,515 10,609 9,835 10,408 11,013 11,651 12,324
60,245 60,597 62,261 65,890 69,719 73,759 78,022
52,626 56,406 56,145 59,417 62,870 66,514 70,358
7,280 9,255 8,494 8,989 9,511 10,063 10,644
45,346 47,151 47,655 50,432 53,363 56,455 59,718

76.5% 79.2% 77.9% 77.9% 77.9% 77.9% 77.9%

85.5% 87.2% 86.4% 86.4% 86.4% 86.4% 86.4%
75.3% 77.8% 76.5% 76.5% 76.5% 76.5% 76.5%

19,978 19,982 20,573 21,772 23,038 24,373 25,781

12.4% 14.9% 13.6% 13.6% 13.6% 13.6% 13.6%

87.6% 85.1% 86.4% 86.4% 86.4% 86.4% 86.4%

5,730 5,934 6,008 6,358 6,728 7,118 7,529

1,665 1,665 1,714 1,814 1,920 2,031 2,148
1,413 730 1,094 1,157 1,225 1,296 1,370

65.1% 71.2% 68.1% 68.1% 68.1% 68.1% 68.1%

18.9% 20.0% 19.4% 19.4% 19.4% 19.4% 19.4%
16.0% 8.8% 12.4% 12.4% 12.4% 12.4% 12.4%

15,788 16,267 16,592 16,924 17,263 17,608 17,960

4,278 4,232 4,444 4,666 4,899 5,144 5,401
6,013 6,028 6,330 6,646 6,979 7,328 7,694

8 8 8 8 8 8 8
20 20 20 20 20 20 20

98.68 101.67 103.70 105.78 107.89 110.05 112.25

26.74 26.45 27.77 29.16 30.62 32.15 33.76
37.58 37.68 39.56 41.54 43.62 45.80 48.09
 958 1,191 1,176 1,572 2,026 2,580 3,223
5,901 7,379 7,261 9,709 12,513 15,934 19,908
16.2% 16.1% 16.2% 16.2% 16.2% 16.2% 16.2%
 Revenue = Unit Sold * Per unit Price

Mar-24 Service Industry -Majority of them try to fig out that drivers of their re
2024 - E

Efforts that I have to put to teach my students, against that I charge remune
785
61,860
Time (Hrs worked/Months Worked)
78.8 Unit Sold

GDC

Service

Revenue India

11,685

12,386 IP Led

647
5.5%

637
98.4%

95,555 Billable = Total efforts/unit/time invested to provide service

13,035
82,520
74,414 Billed = Efforts/unit/time for which we are charging the revenue
11,258 Unit
63,161 Unit

Utilisation = Billed
77.9% Billable
86.4%
76.5%

27,267 Unit

13.6%
86.4%

Technical 100
1 Service = Billable 60
7,963 2 IP Led 30
2,272 3 Trainees 10
1,449

68.1% No of person * 12 Billable person month

19.4% 12
12.4%

18,319 Per Unit

5,671 Per Unit
8,079 Per Unit

8
20

114.50
35.45
50.49
 4,003
24,723
16.2%
 Per unit Price

to fig out that drivers of their revenue is nothing but efforts to provide that service

nts, against that I charge remuneration

per unit

Man hrs/month worked

Hrly/Monthly rate

Man hrs/month worked

Hrly/Monthly rate

Man hrs/month worked

Hrly/Monthly rate

to provide service
re charging the revenue

Billable person month no of person in service * 12

12
Persistent Systems
Cost Drivers
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)
Date Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
Year 2013 - A 2014 - A 2015 - A 2016 - A 2017 - A

Revenue from Operations 12,945 16,692 18,913 23,123 28,784

Employee Benefit expense 7,188 9,090 11,114 14,068 18,008

Cost of technical professionals 536 906 1,090 1,587 1,818
Other Expenses 2,094 2,553 2,806 3,554 4,304
Depreciation
Interest Expense
Tax Expense

Commonsize Analysis (As % of Revenue from Operations)

Employee Benefit expense 55.5% 54.5% 58.8% 60.8% 62.6%
Cost of technical professionals 4.1% 5.4% 5.8% 6.9% 6.3%
Other Expenses 16.2% 15.3% 14.8% 15.4% 15.0%
Depreciation
Interest Expense
Tax Expense

Effective Tax Rate (Tax Expense/PBT) 28.7% 27.3% 25.5% 25.0% 24.8%

Dividends Paid 340 440 560 1,040 480

Dividend Tax 55 75 107 212 98

Dividend Payout Ratio 18.1% 17.6% 19.3% 37.5% 15.9%

Dividend Tax as % of Dividend Paid 16.2% 17.0% 19.1% 20.4% 20.4%

Dividend Payout Ratio =Dividend Paid

PAT
Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
2018 - A 2019 - E 2020 - E 2021 - E 2022 - E 2023 - E 2024 - E

30,337 32,839 37,272 42,303 48,015 54,499 61,860

18,316 20,186 22,911 26,004 29,514 33,500 38,025

3,181 2,759 3,131 3,554 4,034 4,578 5,197
4,153 4,703 5,338 6,058 6,876 7,805 8,859

60.4% 61.5% 61.5% 61.5% 61.5% 61.5% 61.5%

10.5% 8.4% 8.4% 8.4% 8.4% 8.4% 8.4%
13.7% 14.3% 14.3% 14.3% 14.3% 14.3% 14.3%

24.7% 24.7% 24.7% 24.7% 24.7% 24.7% 24.7%

800 719 874 1,044 1,240 1,460 1,716

150 135 164 196 233 274 322

24.8% 20.3% 20.3% 20.3% 20.3% 20.3% 20.3%

18.8% 18.8% 18.8% 18.8% 18.8% 18.8% 18.8%
Persistent Systems
Asset Schedule
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)
Date Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18
Year 2013 - A 2014 - A 2015 - A 2016 - A 2017 - A 2018 - A

Property, Plant and Equipment 2,800 2,785 3,021 2,968 2,768 2,581
Other Intangible Assets 702 1,269 995 1,325 2,515 2,464
Total Fixed Assets 3,502 4,054 4,016 4,293 5,283 5,045

Depreciation & Amortisation 783 1,026 939 990 1,490 1,585

Depreciation & Amortisation Rate % 27.0% 20.7% 20.4% 27.7% 28.2%

Purchase of Fixed Assets 1,156 581 957 1,659 2,176 655

Purchase of Fixed Assets as % Reven 8.9% 3.5% 5.1% 7.2% 7.6% 2.2%

Dep Amt =Dep Rate * Asset Value 4,084

29
Dep Rate =Dep Amt
Asset Value

=>

=>

A1 A2 A3
New 100 100 100
PPE 60 100 0
IA 40 0 100
Total 100 100 100
 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
2019 - E 2020 - E 2021 - E 2022 - E 2023 - E 2024 - E

2,761 3,105 3,596 4,227 4,995 5,905

2,464 2,464 2,464 2,464 2,464 2,464
5,224 5,568 6,060 6,690 7,459 8,369

1,670 1,755 1,891 2,073 2,300 2,573

28.0% 28.0% 28.0% 28.0% 28.0% 28.0%

1,849 2,099 2,382 2,704 3,069 3,483

5.6% 5.6% 5.6% 5.6% 5.6% 5.6%

Asset Value =Existing Asset + Purchase of asset - Disposal of asset

A1 A2 A3
At the beg At the end Between of the year (half yearly)

Purchase => Purchase => Purchase

full year dep no dep half year dep

Disposal => Disposal => Disposal

no dep full year dep half year dep
half yearly)
 Revenue Forecaste
=> We do revenue forecasting first
=> It is our initial cash inflow from operation
=> It is also the limiting factor forecasting, which means it will be forecasted first and all
the other forecasting will be directly or indirectly dependent on it.
=> All the other element in the business exist to bring
that initial cash inflow via which the returns/ profit can be earned.

Ke =Do*(1+G%) +G% Dividend Valuation Method

Po (We predict the dividend
Do Current dividend paid in the future, and discount
Po Share price of the Co. them as per present value)
just after paying the
dividend
G% Growth% expected
for dividend

Capitalising Asset Pricing Method

(CAPM)
Ke =Rf + B*Premium Return

Min expected return that any co. should meet

Rf Risk Free Return

B Beta
Market Premiun =Market Return - Rf
Rf 7%
Market Return 13%
Market Premiun 6%
Project Finance Investment Appraisal

Equity Research Investment Appraisal

PY
2018
asted first and all

WACC (Weighted Average Cost of Capital

Equity Capital Debt

Cost against
Dividend the capital Interest
raised

Cost of Equity WACC Cost of Debt

(Cost against (Adding diff (Cost against
the equity cost of diff the debt
capital) source as per capital)
(Cost of equity the propotion
is denoted by Ke) of them in the
capital)

WACC =Ke*We+Kd*Wd
Projects Definite Life FCFE Cost of Equity
(Cash available only
for equity)
(Cash after profit
and after debt)

Co. share Indifinite Life FCFF WACC

(Going Concern) (Perpetual) (Cash available for
debt and equity both)
(Cash after profit
but before debt)

Future Years
2019 2020 2021 2022 2023 2024 2025 2026 2027
Growing Phase Facing more competition
Explicite Forecast Period Linear Declining Phase (LDP)

=> We calculated FCFF for the future till perpetuity, Can I say that we have calculated the value that the firm/ente
Yes….

=> So if I discount these FCFF (Value of the future generated by the enterprise) to our present year (in this case it
cash flow (DCF) approach
FCFF (DCF) + TV (DCF) =Enterprise Value (DCF appraoch) -I
MV of equity + Debt - Cash =Enterprise Value (Acq Approach) -II

Now using equation I and II

FCFF (DCF) + TV (DCF) = MV of equity + Debt - Cash

FCFF (DCF) + TV (DCF) + Cash - Debt =MV of Equity (future MV discounted as per today)

If we divide this with no. of share, we will get what?

Share price (Future share price discounted as per today) which will be ter
Current Market Price Target Price
(Real Share price of today) (Future share price, discou
CMP < TP
800 Undervalued 1200
We should purchase

800 CMP > TP 500

Overvalued
We should sell
=> Cost of debt is represented as Kd
=> Kd = Int% * (1-Tax%)
EBIT 1000 1000
Int 0 200
PBT 1000 800
Tax 330 264
 Cost of Equity

2028 2029 2030

more competition Terminal Year -From Terminal year growth will saturated as per industry/economy growth
clining Phase (LDP) Terminal Value (TV) -All the FCFF until perpetuity, and then discounting at last year of LDP

TV =FCFF of Last year of LDP * (1+Eco G%)

(WACC-Eco G%)

the value that the firm/enterprise will be generating in the future till perpetuity?

present year (in this case it is 2018), so I will get Enterprise Value as per discounted Equity

(Value crated by the enterprise in the future discounted as per today)

(Current actual data) Debt

Intrinsic Value Total

If I want to acquire this

per today) which will be termed as Target Price
EV
Target Price
(Future share price, discounted as per today)
ustry/economy growth rate
t last year of LDP

Equity & Liability Asset

100
NCA 110

150
OCA 90

Cash 50

250 Total 250

If I want to acquire this co. I will have to take all the equity and debt under me…..

=Equity+Debt-Cash
Persistent Systems
Valuation-DCF
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)

Valuation Assumptions Data Sources

g (World Economic Growth) 5.0% Paper 99 , Goldman Sachs Publication 2003
Rf 8.0% 10 Year GOI Bond Yield
Rm 16.0% 10 Year CAGR% - NIFTY
Beta 0.75 in.reuters.com
CMP 650 in.reuters.com

Valuation Data
Total Debt (Long Term Borrowings) ( 17
Cash & Cash Equivalents (2018) 1,344
Number of Diluted Shares (2019) 80
Tax Rate (2019) 25%
Interest Expense Rate (2019) 10%

MV of Equity 51,995
Total Debt 17
Total Capital 52,011

WACC
We 99.97%
Wd 0.03%
Ke 14.0%
Kd 7.5%
WACC 14.0%

FCFF & Target Price

Explicit Forecast Period
2019 2020 2021 2022 2023
EBIT * (1-Tax Rate) 3,536 4,297 5,135 6,095 7,179
Dep 1,670 1,755 1,891 2,073 2,300
Purchase of Assets (1,849) (2,099) (2,382) (2,704) (3,069)
Changes in Working Capital (54) (112) 18 (18) 139
FCFF 3,302 3,842 4,662 5,446 6,550

% Growth in Post Tax EBIT 21.5% 19.5% 18.7% 17.8%

As % Of Post Tax EBIT

Dep 47.2% 40.8% 36.8% 34.0% 32.0%
Purchase of Assets -52.3% -48.8% -46.4% -44.4% -42.7%
Changes in Working Capital -1.5% -2.6% 0.3% -0.3% 1.9%
FCFF 3,302 3,842 4,662 5,446 6,550
Terminal Value
Total Cash Flow 3,302 3,842 4,662 5,446 6,550

Enterprise Value (EV) 72,103 (DCF Approach)

Less: Debt 17
Add: Cash 1,344
Equity Value 73,430 Intrinsic Value

Target Price 918.0

% Returns Rating
% Returns 41.2% < 5% SELL
>5%, < 15% Hold
Rating BUY >15% BUY

Sensitivity of Target Price to Terminal growth % and WACC

Terminal Growth %
918 4.0% 4.3% 4.5% 4.8%
13.0%
13.3%
13.5%
13.8%
WACC

14.0%
14.3%
14.5%
14.8%
15.0%
blication 2003

Linear Decline Phase Terminal Yr

2024 2025 2026 2027 2028 2029 2030
8,437 9,738 11,038 12,280 13,406 14,356 15,074
2,573 3,045 3,452 3,840 4,192 4,490 4,714
(3,483) (4,092) (4,638) (5,160) (5,633) (6,032) (6,334)
137 173 196 218 239 255 268
7,663 8,865 10,048 11,179 12,205 13,069 13,723

17.5% 15.4% 13.3% 11.3% 9.2% 7.1% 5% 5%

Total Fall 12.5% Fall per year 2.09%
NPER 6
30.5% 31.3% 31.3% 31.3% 31.3% 31.3% 31.3%
-41.3% -42.0% -42.0% -42.0% -42.0% -42.0% -42.0%
1.6% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8%
 7,663 8,865 10,048 11,179 12,205 13,069
152,511
7,663 8,865 10,048 11,179 12,205 165,580

Terminal Growth %
5.0% 5.3% 5.5% 5.8% 6.0%
5% 5% 5%
Persistent Systems
Valuation-Relative
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)

PEER DATA
Capitalization
Company Name Ticker Share Price Number of Debt Cash Equity
Shares Value

MindTree MINT.NS 869 164 3,009 3,289 142,364

Hexaware HEXT.NS 353 297 - 1,033 104,743
Mphasis MBFL.NS 1,040 193 3,899 7,067 200,855
Cyient CYIE.NS 608 113 2,410 9,807 68,443

Maximum
75th Percentile
Median
25th Percentile
Minimum

Persistent Systems 650 80 17 1,344 51,995

Valuation Statistics

MindTree
Hexaware
Mphasis
Cyient

Maximum
75th Percentile
Median
25th Percentile
Minimum

Persistent Systems
 Revenue EPS
Enterprise TTM 1-Y FWD 2-Y FWD TTM 1-Y FWD 2-Y FWD
Value
Mar-18 Mar-19 Mar-20 Mar-18 Mar-19 Mar-20
142,084 54,628 70,145 79,599 34.00 45.75 51.38
103,710 46,478 54,208 61,116 19.00 21.70 24.72
197,687 63,775 77,586 88,933 43.00 56.41 63.85
61,046 39,139 46,893 52,713 36.00 39.45 47.69

63,775 77,586 88,933 43.00 56.41 63.85

56,915 72,005 81,932 37.75 48.42 54.50
50,553 62,176 70,357 35.00 42.60 49.54
44,643 52,379 59,015 30.25 35.01 41.95
39,139 46,893 52,713 19.00 21.70 24.72

50,668 30,337 32,839 37,272 40.39 44.20 53.72

Enterprise Value / Revenue P / E Multiple

Mar-18 Mar-19 Mar-20 Mar-18 Mar-19 Mar-20
2.6 x 2.0 x 1.8 x 25.5 x 19.0 x 16.9 x
2.2 x 1.9 x 1.7 x 18.6 x 16.3 x 14.3 x
3.1 x 2.5 x 2.2 x 24.2 x 18.4 x 16.3 x
1.6 x 1.3 x 1.2 x 16.9 x 15.4 x 12.7 x

3.1 x 2.5 x 2.2 x 25.5 x 19.0 x 16.9 x

2.7 x 2.2 x 1.9 x 24.5 x 18.6 x 16.4 x
2.4 x 2.0 x 1.7 x 21.4 x 17.4 x 15.3 x
2.1 x 1.8 x 1.6 x 18.2 x 16.1 x 13.9 x
1.6 x 1.3 x 1.2 x 16.9 x 15.4 x 12.7 x

1.7 x 1.5 x 1.4 x 16.1 x 14.7 x 12.1 x

Persistent Systems
Valuation-Summary
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)

Multiple
Min 25 %ile Median 75 %ile Max Parameter
Relative Valuation
EV / Revenue (TTM) 1.6 x 2.1 x 2.4 x 2.7 x 3.1 x 30,337
EV / Revenue (Fwd-1) 1.3 x 1.8 x 2.0 x 2.2 x 2.5 x 32,839
EV / Revenue (Fwd-2) 1.2 x 1.6 x 1.7 x 1.9 x 2.2 x 37,272
P / E (TTM) 16.9 x 18.2 x 21.4 x 24.5 x 25.5 x 40.4
P / E (Fwd-1) 15.4 x 16.1 x 17.4 x 18.6 x 19.0 x 44.2
P / E (Fwd-2) 12.7 x 13.9 x 15.3 x 16.4 x 16.9 x 53.7
DCF Valuation
DCF

Average Target Price

EV * Rev = EV
Rev

=> EV +cash - Debt = Equity Value

=> Equity Value = Share Price

No of share
 Implied Share Price Data for Chart Football Field Valuation Cha
Min 25 %ile Median 75 %ile Max Min
EV / Revenue (TTM) 608
608 799 933 1,050 1,192 EV / Revenue (Fwd-1) 551
551 739 825 902 1,063 EV / Revenue (Fwd-2) 556
556 744 828 899 1,052 P / E (TTM) 682
682 733 864 991 1,032 P / E (Fwd-1) 681
681 710 767 821 839 P / E (Fwd-2) 685
685 747 821 883 908 Relative Valuation -
Target Price - DCF 834
834 874 918 967 1,021 DCF Valuation

ge Target Price 764 851 930

PE = Share Price
EPS

=> Share Price* EPS =Share price

EPS
Football Field Valuation Chart
25 %ile Median 75 %ile Max
191 134 117 142
188 86 77 161
188 83 72 153
51 130 127 41
28 57 54 18
62 74 62 25
- - - -
39 44 49 55
 Chart Title

DCF Valuation

Target Price - DCF

Relative Valuation

P / E (Fwd-2)

P / E (Fwd-1)

P / E (TTM)

EV / Revenue (Fwd-2)

EV / Revenue (Fwd-1)

EV / Revenue (TTM)

- 200 400 600 800 1,000 1,200 1,400

Min 25 %ile Median 75 %ile Max