Tuesday, December 18, 2012

Persistent System: Execution holds the key, downgrade to accumulate

Prabhudas lilladher attended Analysts’ Meet of Persistent Systems. The management highlighted evolution of technology towards social, cloud, mobility and collaboration as an advantage for their growth. Moreover, its IP strategy has fuelled the growth along with industry leading margin. The management has shown keen focus on execution after making few key hires over last one year. Downgrade to “Accumulate” due to valuation concern.


- IP strategy – Organic and Inorganic growth: Persistent continues to spend 5% of efforts in developing its own IP. Moreover, Persistent continues to look out for end of life cycle product to build its IP portfolio (Openwave LBS, IBM TNMP). According to the management, the software companies are keen to sell some of these assets in order to free their assets for future growth. The IP acquisitions are profitable from the day of acquisition. Persistent builds solution and services around the IP to deliver services to its enterprise customers.

- Social, cloud, mobility and collaboration – Sweet spot for growth: According to recent Gartner (June-12) report, Social, Cloud, Mobility and Collaboration have taken centre stage of enterprise decision making. According to the management, the main stage deployment of these trends will start from H2CY13. The competencies developed by Persistent over the years will help them exploiting the growth opportunities in these arena

- Decision making shift from CIO to LoBs: According to the management, the decision making is shifting to Line of Businesses (LoBs) from CIOs (Chief Information Officer). LoBs head take quick decisions and the budgets are fragmented. The shift is turning the tide in favour of Persistent.

- Valuation and Recommendation – Downgrade to Accumulate, Execution holds the key: Persistent has made key hires and acquired IPs over the last one year. According to the management, the execution holds the key now. Prabhudas lilladher see a distinct positioning of Persistent compared to peers, giving it an advantage to exploit the growth opportunity. However, the current valuation is demanding. Prabhudas lilladher downgrade Persistent to “Accumulate” as Prabhudas lilladher see limited upside

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