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Tuesday, January 31, 2012

Persistent Systems Ltd:-Buy/sell/growth prospects and recommendation,news and results,target and analysis,view and outlook,multibagger

Scripscan:Persistent Systems Ltd

Story:Persistent has strategically invested significantly in higher margin IP-led business and currently spend 6.0% of its technical man month into R&D up from 5.5% in the last quarter. Its contribution to total revenues increased 160 bps sequentially to 9.2% in Q3 FY12. Going forward the company is well poised to tap the immense opportunities present in IP-led services business and thus will boost top line and provide cushion to margins. Revenue contribution from Top 1/5/10 clients declined 10/160/110 bps sequentially and stood at 15.9%/37.0%/48.3% respectively.I believe that ongoing uncertainty in the west, unstable demand environment is the biggest risk present at the moment, which can delay client decisions and impact IT spending, making it difficult for the company to maintain high growth rate in FY13E. Management too is witnessing some delays in decision making from clients (specially large deals) and believes that consolidation within some large client base can impact business. However, I believe that company's ability to maintain long term relationships with large marquee clients, significant focus on non linear revenue streams and foray into new technological areas will help the company to achieve ~15% growth in US$ terms in FY13E.i expect the company revenue and Diluted EPS to grow at 20.1% and 20.0% to Rs 12.0 bn and Rs 40.7 respectively in FY13E. For Q4 FY12E and FY13E I have assumed USD/INR rate of Rs 50. The stock currently trades at a P/E of 9.4x and 7.9x FY12E and FY13E earnings which I think is at a discount to its peers considering its high growth rate, healthy return ratios and higher margins.I maintain my "BUY" rating on the stock and give a DCF based target price of Rs 403 an upside of 25.8% from current levels.

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