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Prabhudas Lilladher
Persistent Systems
(Accumulate)
CMP: ₹1,607.45
Target: ₹1,750
We attended the ‘Analyst Meet” of Persistent Systems (PSYS). The endeavour of the management was to differentiate itself from tier-1 IT services players as a SMAC wherein PSYS is holding pole position in enterprise digital transformation (EDT), different from IT modernisation (Tier 1). PSYS highlighted the value proposition that it brings in IP acquisition and creation. We see these strategies to help PSYS to position itself uniquely in the market. We roll our model for FY17.
PSYS has not only been successful in gaining new enterprise relationship through IP acquisition, but also further strengthening the reach of IP. Its strength in understanding the product lifecycle goes beyond the cost argument in IP acquisition. The M&A team works to de-risk the acquisition. We see this strategy to extend the relationship of PSYS with enterprise and ISVs.
According to the management, H2FY15 is likely to be stronger than H1FY14, eyeing about 7 per cent CQGR over the next two quarters. However, the investments are likely to impede margin expansion in the near term. We view Persistent's strategy to differentiate itself as immaculate. But, we may see a bumpy ride on Ebitda margin as management spends on execution. Moreover, the recent run-up restricts near-term upside.
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