Persisent Systems
BSE SENSEX
25,285
S&P CNX
7,704
21 March 2016
Update
| Sector:
Technology
CMP: INR740
TP: INR820 (+11%)
Neutral
Collaborating with IBM on its IoT initiative…
… by co-investing in Watson’s continuous engineering platform
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val ( INR m)
Free float (%)
Preferred alliance partner for IBM Watson IoT solution
PSYS IN
80.0
817/563
7/10/11
59.2
0.9
108
61.5
Financials Snapshot (INR b)
Y/E Mar
2016E 2017E 2018E
Sales
22.6
31.3
36.7
EBITDA
4.3
5.3
6.5
Adj. PAT
3.0
3.5
4.3
Adj. EPS (INR)
37.6
43.7
54.3
EPS Gr. (%)
3.6
16.1
24.3
BV/Sh.(INR)
206.4 236.5 251.7
RoE (%)
20.0
20.3
22.9
RoCE (%)
19.5
19.6
22.8
P/E (x)
19.7
16.9
13.6
P/BV (x)
3.6
3.1
2.9
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Dec-15 Sep-15 Dec-14
38.5
26.4
7.9
22.2
38.5
11.8
16.6
33.1
38.9
11.1
27.7
22.4
PSYS recently entered into collaboration with IBM Watson’s IoT solution as a
preferred alliance partner for the product’s Continuous Engineering Platform.
Continuous engineering solutions provide the ability to upgrade on an ongoing
basis, the software in devices governed by IoT principles.
Two dimensions of the arrangement with IBM are:
Investments from PSYS on the IBM platform for continuous engineering
platform – a total of 500 employees. This will enable the company
revenue share in the sale of the solution.
It also allows PSYS to take its solutions and services to industry 4.0
customers worldwide, where the idea of Software-Defined Things is a
major driver for Digital Transformation
The collaboration has a revenue potential of 15-20% of the company’s FY16
revenue base (of ~USD345m), which implies USD52-69m revenues in FY17.
This has a significant growth potential in the long run.
The investments will pressurize the margins by 200-250bp in FY17 and FY18.
However, the mitigating factors to the same will likely be: [1] Exercising levers
elsewhere in the business to stem the decline and [2] Robust growth in the
sales of the solution in the near-medium term.
From PSYS, ~500 people will work towards this engagement, inclusive of
employees currently on IBM’s payroll, its own payroll and new hires. It will
also add a couple of small centers in Mexico and Israel.
Aligns organization and leadership with growth strategies
PSYS realigned its business around four growth strategies. The new structure
would be effective April 1, 2016.
[1] Digital:
Bringing together data, APIs and experiences for enterprise digital
transformation (EDT). President: Sudhir Kulkarni.
[2] IBM Alliance:
Multi-dimensional relationship between PSYS and IBM, including
the recent alliance for the IoT platform. President: Mike Kerr.
[3] Services:
Focus on services for software and product development including
agile and experience design, driven by adoption of SMAC for ISVs and enterprises
that are becoming software-driven. President: Mritunjay Singh.
[4] Accelerite:
Focus on current product suite as well as the takeover of non-
strategic products from other technology companies. President: Nara
Rajagopalan.
The company also plans to strengthen its corporate functions as part of ‘Corporate
Operations’ that will enable and accelerate the four growth strategies, which will
be headed by Atul Khadilkar.
FII Includes depository receipts
Stock Performance (1-year)
Persistent Sys
Sensex - Rebased
900
800
700
600
500
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Sagar Lele
(Sagar.Lele@MotilalOswal.com); +91 22 3982 5585
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.