Persistent Systems-Potential Multibagger

(Kumar Saurabh) #147

There has been lot of negative articles around Watson . There r justified reasons too as IBM ran lot of PR around it with unrealiatic timelines .however this is encouraging :

Idc named them leaders in iot technologies, this is. Where persistent has invested in continuous engineering n this specific area of Ibm needs to b tracked in detail. Personally, m bullish with opportunities in iot space .

Also, persistent has guided for margin decline for few years. Due to front loaded product and ip based investments in this area. Neverthless, revenues ve grown 20 percent plus but margins ve been affected by front loaded investments, dryness in IT sector traditional business, currency fluctuation and one time legal settlements. Now, all other things slowly stabilizing and investment phase coming to end in next few quarters, it would be interesting to see if persistent management lives up to expectation on new style of IT

(Kumar Saurabh) #148

Some info on recently concluded investor day

I am personally interestsd to explore their automated analytics product under accelerite as I ve some understanding in this area

(skg) #149

Anybody still tracking Persistent system? I was looking at the business and got interested recently due to below reasons.

  1. PE below 20
  2. Company’ focus is on digital, RPA, AI,Machine learning. These seems to be the future and I am seeing other industry moving towards them.
  3. Works in healthcare domain which is niche. Not all IT companies work in this domain.
  4. Management - I heard their AGM con-call and management accepted that their execution was not well in Q4 2017. I liked them accepting it and trying to correct it.

Cons - There are large cap like Infosys which are available at PE of 16.

(Shailesh) #150

Execution continues to be a concern .
Last 3 odd years Management have made big plans but somehow bottomline numbers growth has been pretty ordinary ( lower than Tier 1 players ) . Hoping for their IP plan to fructify…

Disc : Invested since APR / MAY 2017 @ 570 odd . Currently planning to hold for 2 years - views may be biased.


(Vinith Jain) #152

Well, the doubtfulness of their deposit with IL&FS upto 430mln rupees is a worry along with poor growth.


Problem is that their growth is low compared to large caps like TCS and Infy that too when they have burnt enough cash in buying IPs doing partnerships. Results fail to match so called potential.

(Gaurav Agarwal) #154

What is the source of this information? I checked their latest annual report, could not find any mention of IL&FS?


(Vinith Jain) #155

check notes of qtr result announcement of sept 2018 dated 21st oct 2018.

(mmw) #156

Heavy insider buying in last couple of weeks

(Kumar Saurabh) #157

Heavy by count and heavy by amount are two different things :grinning:. Nevertheless, I think subdued quarter results and IL&FS exposure have taken a big beating on stock. With 350-400 cr of annual cashflow n a conservative single digit possible growth in digital in sectors like. Healthcare n Financial, company is available at 4300 market cap n if m not wrong ,1000 cr+ cash . Though, mgmt has been accepting underperformance in quarterly concalls n inability to convert pre sales into deals , they spoke about new hiring to be done n without justifying anything, focus on action rather than reasons . So, I think though to drive sales , they might increased SGA cost, at this valuation lot of downsides look factored in . Disc: had completely exited my 2016 position in feb-march 2018. Have taken a fresh 2% position in last 2 weeks post IL&FS price crash

(mmw) #158

Amount is definitely not heavy :grinning: but at least this insider buying gives a lot of confidence… Management seemed quite confident about future quarters in the concall. Taking into consideration all these things, downside looks limited.

Disc: Tracking since the fall

(Salman_kn99) #159

Can you tell me how did you get this info on screener?

(mmw) #160

Just add your company in watch-list and you will start getting all such updates for your companies

(Yogesh Sane) #161

IT companies talk a lot about their future strategy and how they are helping the fortune 500 companies change the world. All that is just plain pep talk. Reality is Indian IT is a scale business not a skill business. Labor arbitrage is still the most important selling point. Employees are the raw material in this industry. They will hire people only when they have a signed deal on hand. They are not hiring on bench anymore.

That’s why we should watch how many people an IT company is hiring instead of listening to the pep talk. That’s where Persistent appears to be making a comeback. Q2 FY 19 is the first quarter in last 2 years Persistent has added net headcount, especially in sales area. If all these sales people do their job and bring more deals, Persistent could hire more tech to deliver boosting revenue and perhaps margins.

Source Company Presentation Q2 FY 19.

Need to watch if this trend continued in Q3.

Disc: No position but interested.


These guys have failed miserably in scaling. If I am not wrong they have been around for as long as Cognizant which is 50 times Persistent now. They kept hiding behind excuse of doing niche work.

(Abhishek Basumallick) #163

Q3 Summary (source: capital market)

IT teams continue to leverage its Software 4.0 offering for incremental and iterative development.

Enterprises are integrating applications through APIs by bringing internal data, external data and events together, building insights that are actionable.

Machine Learning has become mainstream as customers move beyond dashboards to task centric actionable insights that are embedding Intelligence in applications.

Businesses continue to march on their journey to become software driven which is helping the company win customers.

Riding high on the splendid response from last year’s Smart India Hackathon, the third edition has been launched, with the finale for the Software edition slated for March 2019.

The management hopes this movement continues to provide students a platform to harness the true potential of technology for nation-building.

The Board of Director approved buy-back of equity shares under open market route for an aggregate amount not exceeding Rs 225 crore (10% of net worth) at a maximum buy-back price not exceeding Rs 750 per share.

Sequentially Persistent Systems posted 3.4% growth in consolidated sales to Rs 864.25 crore for the quarter ended December 2018. On yoy basis it grew 9.1%.

EBITDA rose 18.6% qoq and 23.9% yoy to Rs 170.32 crore.

PBT rose 2.1% qoq and 10.2% yoy to Rs 129.52 crore.

PAT rose 4.1% qoq and 0.1% yoy to Rs 91.72 crore.

Quarter $ Revenues stood at $ 120.84 Million, up 2.2% QoQ and a decrease of 1.4% YoY.

Nine months $ revenue rose 2.6% to $ 362.67 million.

Nine months Rupee revenue rose 11.1% to Rs 2534.09 crore.

Nine months Rupee EBITDA rose 26.9% to Rs 453.99 crore.

Nine months Rupee PBT rose 13.3% to Rs 375.03 crore.

Nine months Rupee PAT rose 7.13% to Rs 267.21 crore.

In the last two years, its focus on digital has helped it build capabilities in key technology areas and experience in helping customers as they transform to being software driven businesses.

Looking ahead, the company is doubling down on three industry markets – Financial Services, Healthcare & Life Sciences and Industrial IoT in addition to its strong presence in Software and Technology.

The management is delighted by the grand success of the Software Edition of Smart India Hackathon 2018 and look forward to innovative solutions at the Hardware Edition in June this year.

Linear revenue grew 3.5% and IP revenue was flat in 9 months.

Linear revenue grew but IP led revenue fell in Q3 on qoq basis.

Staff cost was lower reflecting offshoring of certain projects.

Doubtful debt were higher by 10 million as they had crossed 80 days.

25 new clients in digital business out of which many were marquee clients.

Treasury income was Rs 225 million against Rs 195 million helped by m2m gain on MF as interest rates fell during the quarter.

It has Rs 43 crore as corporate FDs in IL&FS. It will take 9 months to address the liquidity situation. Deposits were due in Jan to June 2019. At this stage the company is not in a position to ascertauin the amount of hit or hair cut it has to take regarding the same. It will update going forward as and when possible.

It spent Rs 26 crore in nine months on capex.

Cash in books were Rs 1501 crore.

Value of forward contracts hedged were $ 120 million at Rs 71.54 per dollar.

IBM reseller business were less than expected in IP led revenues. It will move in next quarter and so the management expects to get it in this FY.

It expects to aggressively hire in the March 2019 quarter as well.

It is very close to making offer to the person identified to take over as CEO of the company.

Effective tax rate would be in the range of 28-29% in Q4.

Services revenues accounted for 75% of revenues in q3 against 74.4% qoq and 72.6% yoy.

IP led revenues accounted for 25% of revenues in q3 against 25.6% qoq and 27.4% yoy.

Digital revenues accounted for 22.9% of revenues in q3 against 22.0% qoq and 21.4% yoy.

Multiple new projects started will deliver long-term revenue growth.

It will continue to invest in new technologies and in enhancing domain and consulting skills in its customers’ geography.

Digital business grew 6.5% qoq.

The management sees good traction in digital business in healthcare vertical in the US.

The management is very confident of maintaining margins. As it sees steady growth in offshore opportunities, Offshore numbers will continue to go up and onsite will continue to go down. Thus, it will either increase or maintain margins going forward.

The company is focusing on cost management.

Steps taken due to softness in business in last two quarters have started giving yields. The management is confident of the momentum to continue.

Headwinds expected in next 2 quarter are salary for hard-to-get-skills.

There are opportunities to increase the margins at the EBITDA level and PBT level. However, the management refused to give range guidance.

The IoT market has been under lots of pressure as companies like GE have been seen backpedaling. However, the business is expected to be stable for the company.

The management is disappointed that there will not be a double-digit growth rate in the current year but hopefully it expects to get there in the next FY as the business has enough things going on. However, only by next quarter’s concall it will be able to give a clear picture on FY 2020.

Current organic growth is not dependent on the joining of the new CEO.

The management feels that there is no reason why digital business should not grow at 25-30% yoy.

(Kumar Saurabh) #164

Had exited my IT holdings in June but with current price fall, re entered persistent, Tata Elxi and Accelya. Quarter was not so great for persistent as PAT was flat.
The major problem which I see why Persistent has failed to pull great results is traditionally persistent has been an outsourced product development company which is trying to find its foot in new style of IT which is digital, analytics and artificial intelligence. Now, This new style of business apart from new skill sets in terms of ML,AI,Blockchain, IoT etc. needs few more things which is a quick fail and learn approach where all this agile concept comes. Being from product development background, Persistent has an advantage in terms of new IT project lifecycle management, API management etc. But the other strong requirement which is knowledge of business and sector and processes is where Persistent does not hold any major advantage and that is where the typical TCS, Infosys or Mindtree in same league score better. Also, the kind of sales culture required is very different from the kind of business persistent has been doing. One good thing which they have done is that they have identified financials and healthcare along with manufacturing (leveraging IBM partnership) which means they have a sectoral focus. But somehow they have not been able to address the sales part. Looks like there are lot of internal changes happening as per concall and the change in sales structure, the compensation,budget, target, goal setting as well as getting a CEO , all of these are part of resolving the sales issue. I think once they overcome this hurdle, it can do much better and of course they have to pick the domain and leverage their advantages which they bring from OPD experience over its peers,

There were few key takeaways from concall:

  1. Lot of focus on getting sales model right which is visible in sales structure, CEO hiring etc.
  2. Looks like future quarter may surprise on positive note as this is second continuous quarter where management indicated that lot of hiring is going on
  3. At least the falling margins have stagnated which means all the investments in IBM leading to margin fall , should be over and this should be new low base. However, the anticipated business from IBM partnership has not been up to expectation

One more things which is pending and would like to do is a separate analysis of their recent acquisition of companies and products and their individual contribution to topline, profitability and return on capital.

Results were nothing special and IL&FS 40cr of overhang is still there but the kind of beating stock got, felt with 4400 cr market cap and 1400 cr of cash, excluding cash generated other income, a 300 cr annual cashflow at enterprise value of 3000 cr is worth and investment, Chances to lose is lesser and gaining higher.


Disc: Reentered with 6% allocation at around 560 Rs

(amit) #165

You are getting good IT company with such cheap valuation ex cash . You get bond yield of more than 10 % assuming they dont grow at all (with annual 3 to 4 % rupee deprecation ). All these have very less downside and upside can be anything . So it is good bet.

Accelya has more repeat business than persistent . IBM alliance may not do as well because Microsoft IOT is doing lot of better but yet it still giving cash flows . Basically They can make lot of mistakes or trials and we are covered as long as they can grow in single digits .

(Gaurav Bhagwat) #166