Saturday, 24 November 2012

Incredible Stocks - Persistent Systems

When you are searching for companies to invest in, it always helps if you spot a company which provides a specialised product or service. As opposed to companies which provide many varied products or services, one which has some specialisation and has some niche market to go with it, definitely will be far ahead of any competition.
Of course, the fundamentals of the company which can be inferred from the parameters and relevance in the industry in the long run are important before taking a final decision on investing in stocks.

Continuing with our journey on good stocks to invest, in this post we look at one such company that has specialisation in the field in which it operates and may well be one of tomorrow’s bluechips.

Persistent Systems is predominantly engaged in the Outsourced Product Development (OPD) services and offers complete software life-cycle services to its clients. Unlike other companies in the IT sector who provide enterprise solutions to their clients, Persistent Systems is more engaged as a Third Party Vendor to Independent Software Vendors and hence engaged with the complete product development and upgradation cycle. Some pointers to understand the business of Persistent systems are :

  • It acts as a Third Party Vendor to Independent Software Vendors (ISVs). This reduces the time needed for product development and other overheads relating to product upgradation thus significantly reducing the clients’ expenditure towards R&D in-relation to product development.
  • Engagement with ISV for the complete life-cycle of the product (development, upgradation, maintenance etc.)
  • The company involves in the core business of its clients due to the nature of its specialised services. Thus clients are engaged with the company for the long term.
  • Acting as a Third Party Vendor, its business model is such that the operating expenditure (opex) of its clients is significantly reduced, thus giving relevance to the business.
  • Business diversification in Cloud computing, Analytics, Enterprise Mobility, Enterprise collaboration which have contributed to 45% of its  revenue.
  • Many big companies are already shifting their captive segments (R & D) to TPVs like Persistent so that the cost overheads are reduced. This means there is more potential for revenue flow for companies like Persistent.

Lets take a look at the parameters of the company for a clearer idea of its robust business :

2013 2012 2011 2010 CAGR%
Sales (in Cr) 1294.51 1000 775 601 21.15
Profit (in Cr) 187.62 141 139.74 115.02 13.01
OPM% 23.46 22.43 20.40 24.35
ROCE% 23.72 19.42 15.45 17.54
ROE% 18.43 16.78 18.70 18
Debt/Equity NA Nil Nil Nil
Interest Coverage Ratio NA Nil Nil Nil
Networth(in Cr) NA 840.51 747.11 638.99

The CMP at the time of the post was Rs.475.90

The company has no debt and has maintained this for the past 4 years at a stretch. There is a steady growth in its networth which is a good sign. Also the profit has grown steadily for the period under consideration. It has better OPM which is close to some of the large cap IT companies.

The Sept quater sales rose by 37.23% YOY and 8.7% QOQ. Similarily the profits rose 40.35% YOY and 7.38% QOQ.

This company can definitely prove to be a good stock to invest in. We should keep a watch over it.