Persistent Systems Ltd.

Transcription

1 2016 Equirus All rights reserved Rating Information Price (Rs) 666 Target Price (Rs) 645 Target Date 30th Sep '17 Target Set On 25th July '16 Implied yrs of growth (DCF) 5 Fair Value (DCF) 644 Fair Value (DDM) 298 Ind Benchmark Model Portfolio Position Stock Information BSE IT NA Market Cap (Rs Mn) 53,240 Free Float (%) % 52 Wk H/L (Rs) 798/562.5 Avg Daily Volume (1yr) 102,793 Avg Daily Value (Rs Mn) 69 Equity Cap (Rs Mn) 800 Face Value (Rs) 10 Bloomberg Code PSYS IN Ownership Recent 3M 12M Promoters 38.1 % -0.4 % -0.5 % DII 12.1 % 0.1 % 1.1 % FII 22.6 % 0.5 % 2.2 % Public 27.2 % -0.2 % -2.9 % Price % 1M 3M 12M Absolute -6.5 % -7.4 % 4.3 % Vs Industry -1.6 % -2.0 % 6.6 % KPIT % % 17.9 % Cyient 1.0 % 6.6 % -7.1 % Standalone Quarterly EPS forecast Rs/Share 1Q 2Q 3Q 4Q EPS (16A) EPS (17E) Persistent Systems Ltd. Absolute : TRADE Relative :BENCHMARK 1QFY17 Result: Est. ( ), PT ( ), Rating ( ) Regular Coverage -1% ATR in 14 months Retain TRADE as acquisitions help growth but drag margins! Persistent reported decent quarterly earnings as $ revenues grew 4.3%/33.3% qoq/yoy to $104.8mn, driven by 4.4%/4.1% qoq growth in services and IP business. Persistent realigned its organizational structure with four Presidents independently running P&L of Services, EDT, Accelerite and IBM Alliance businesses. The company believes reorganized structure could help account mining initiatives and in-turn drive revenue growth. That said, S&M expenses could rise as segment heads hire new salesperson. Acknowledging that growth could accelerate due to a) IBM deal, b) EDT, c) spends in ISVs, and d)m&a; investments in a) IBM deal, b) S&M, and c) wage hikes, limits margin expansion & therefore, EPS upgrades. Maintain TRADE with a Sep 17 TP of Rs. 645 at 16x TTM EPS of Rs vs. earlier Jun 17 TP of Rs Quarterly growth driven by top client: Incremental revenues for the quarter increased $4.4mn qoq while IBM revenues increased $4.9mn. Ex-IP billable/billed volumes grew 2.4%/2.5% qoq to 17,030 and 12,816 person-months, respectively, while IP-led person-months grew 28%/82% qoq/yoy to 5,235 vs. 4,082 in 4Q. Linear revenue growth was driven by volumes (up 2.5% qoq) and blended billing rates (1.8%). Linear onsite/offshore billing rates improved 5.9%/1.2% qoq, but overall (incl. IP-led) yield decreased 3% qoq. Persistent reiterated that IBM-IoT deal could contribute ~$50-55mn to IP business in FY17E. We are adjusting our $ revenue estimates lower driven by modest qoq decline in ex-ibm IP revenues and rationalization of tail accounts. We expect 17.4% $ revenue CAGR over FY16A-FY19E driven primarily by top client acceleration. Margins impacted by investments and higher amortization charges: 1QFY17 EBITDA margin declined 80bps qoq to 15.1% led by visa costs, IBM deal overheads (500 employees taken over, hired additional 150 for product enhancements) and reversal of provisions relative to 4Q. PSYS expects sequentially margins to be flat in 2Q despite ~200bps wage hike impact while IBM deal related investments could impact FY17E margins by ~ bps. Higher amortization charges and investments lead us to lower EBITM assumption of 10.6%/12% for FY17E/FY18E vs. 12.2%/14% earlier. Top client, US drive growth: Top client revenues for the quarter grew 19% qoq, while top 2-5/6-10 grew just 6%/-5%. Across geographies, US grew 5.4% qoq while RoW grew 150% qoq on a lower base, while Europe declined 19% qoq (5.2% contribution) Maintain TRADE with Sep 17 TP of Rs. 645: Though business fundamentals are in place and growth could be higher than industry, margin erosion limits earnings upgrades, while valuation looks appropriate at 18x/15x FY17E/FY18E earnings. Higher than anticipated a) growth acceleration in IBM, b) better usage of margin levers, and c) growth recovery in EDT business could be key risks to our estimates and thesis. Change in Estimates: IT Services Revised Estimates % Change FY17E FY18E FY17E FY18E Sales ($ Mn) % -2.5% Sales 29,331 33, % -2.5% EBITDA 4,504 5, % -11.0% EBIT 3,108 4, % -16.3% PAT 2,906 3, % -13.3% EPS % -13.3% Consolidated Financials Rs. Mn YE Mar FY16A FY17E FY18E FY19E Sales 23,123 29,331 33,739 39,000 EBITDA 4,171 4,504 5,562 6,521 Depreciation 965 1,396 1,499 1,606 Interest Expense Other Income Reported PAT 2,974 2,906 3,637 4,379 Recurring PAT 2,974 2,906 3,637 4,379 Total Equity 16,393 18,432 21,083 24,403 Gross Debt Cash 7,752 8,833 10,208 12,230 Rs Per Share FY16A FY17E FY18E FY19E Earnings Book Value Dividends FCFF P/E (x) P/B (x) EV/EBITDA (x) ROE (%) 20 % 17 % 18 % 19 % Core ROIC (%) 32 % 26 % 31 % 34 % EBITDA Margin (%) 18 % 15 % 16 % 17 % Net Margin (%) 13 % 10 % 11 % 11 % Raj Kantawala (raj.kantawala@equirus.com) Page 1 of 12 Before reading this report, you must refer to the disclaimer on the last page.

2 Persistent Systems Ltd. Absolute TRADE Relative Benchmark -1% ATR in 14 Months Exhibit 1: Visa Costs and Amortization impacting profitability in 1QFY17 EBIT Margin Bridge bps Exhibit 5: Utilization steady, offshore contribution rising to 86.1% in 1Q17 IBM Alliance negative Utilizations and Other positive Wage hikes negative Amortization (of acquisitions) negative Total -190 Source: Company, Equirus Research Exhibit 2: >$3mn clients dip sharply by 3 sequentially, $1mn- $3mn jumps Client engagement size Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Large>$ 3 mn % 95% 90% 85% 80% 75% 78% 76% 74% 72% 70% 68% 66% 64% 62% Medium>$1 mn, <$3 mn Source: Company, Equirus Research Exhibit 3:Top Client growth rates outpacing the rest Revenue/Client Matrix 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 Top Client QoQ Growth -5.1% 7.8% 2.6% 6.8% 63.5% 19.1% Top QoQ Growth -1.9% 3.7% 3.8% 4.7% 33.3% 14.3% Top QoQ Growth -1.6% 3.7% 3.5% 6.6% 26.0% 10.8% Source: Company, Equirus Research Exhibit 4: Revenue per Employee improving with materialization of IBM deal Revenue per Tech Employee ($) 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 RPTE ($) 10,181 10,065 10,495 10,757 11,654 12,044 Source: Company, Equirus Research Exhibit 6: Transitioning of IBM employees impacting Direct Costs in the near term, attrition largely steady 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 Attrition 15.5% 16.4% 17.1% 17.1% 16.4% 16.7% LTM Attrition (Calculated) 1,268 1,339 1,420 1,476 1,457 1,490 Net Addition USD Growth 0.6% -1.8% 5.5% 8.1% 12.0% 4.3% Direct Cost as % of Sales 59.8% 60.3% 61.1% 61.2% 64.3% 65.3% Wage hike % -2.3% 0.4% 10.8% 3.0% 16.1% 3.6% Source: Company, Equirus Research OnSite mix(%) OffShore mix(%) Utilization (%) (RHS) % Growth -1.9% -1.1% 4.3% 2.5% 8.3% 3.3% Source: Company, Equirus Research Raj Kantawala (raj.kantawala@equirus.com) Page 2 of 12

3 Persistent Systems Ltd. Absolute TRADE Relative Benchmark -1% ATR in 14 Months Exhibit 7: Key Takeaways from Management Conference Call Company re-grouped business into 4 segments a) Services, b) Digital, c) Accelerite, and d) Alliance. The company has identified key business metrics for each of these businesses. With the new re-organization, each segment would have their operational and sales teams. This could increase S&M costs and pressure margins. Services, focus would be to deepen relationship with small set of customers. Within services, solutions are custom built around experiences, API journey and company is looking to provide domain intensive play vs. technical capabilities. Also it intends to provide custom built solutions to select few clients with focus on experience through domain intensive knowledge built Company highlighted, traditional services business is effort based and effort required to do same work is reducing thus creating revenue headwinds. It intends to differentiate by working on outcome based projects which in-turn could lead to higher rates. Digital (Appian, Salesforce, Oracle, EDT) - focusing on selling digital as a solution and partner customers. Investments around acquired IoT businesses are largely on track. Company added employees for product enhancement in addition to employees taken over as part of the deal (~500 guided in 4Q). Management doesn t expect any further additions for rest of the year for this particular product. However, it would review the same in FY18 Enterprise business is not just services (as per earlier reporting) but had some digital component as well. Out of Rs. 1,300mn capex in 1QFY17, Rs. 180mn was operational capex (expects to maintain this run-rate) and rest (Rs. 1,120mn) was M&A related. Persistent expects another Rs. 700 Rs. 750mn payment while operational capex run-rate would remain same. Company maintained that IBM deal could impact FY17E margins by ~ bps. Despite quarterly variations, Persistent seems confident of retaining profit margins within target band. Amortization was up 75% qoq primarily due to IBM deal and products acquisitions. Current trajectory could continue going ahead. IBM-IoT deal seasonality could be similar to seasonality of IBM revenues. Persistent is responsible for parts of IBM IoT products (like product lifecycle management and continuous engineering) and would earn revenues on usage of those by clients. Within IP, non-ibm revenues declined qoq leading to lower growth in IP business. Management continues to expect qoq volatility in IP business. Company plans to rationalize tail accounts. Could be revenue negative in the near term. Persistent expects absolute cost impact of 3% from wage hike, most of which will be absorbed. Non-recurring costs such as visa could help in 2Q Capex payment primarily is to IBM and other acquisitions such as GenWi, PRM, MDM, etc. Brexit is not a concern given negligible footprint in UK. Company would play if opportunities emerge Effective tax rate could range ~25% for the year. 4QFY16 tax rate was lower to doubtful debt write-off which lowered taxable profit. Raj Kantawala (raj.kantawala@equirus.com) Page 3 of 12

4 Persistent Systems Ltd. Absolute TRADE Relative Benchmark -1% ATR in 14 Months Exhibit 8: Quarterly Result Table (Consolidated) % Change RsMn Q1FY17 Q1FY17E Q4FY16 Q1FY16 Q1FY17E Q4FY16 Q1FY16 Net Sales 7,018 6,914 6,771 5, % 3.6% 40.2% Net Sales ($ Mn) % 4.3% 33.3% Direct Costs 4,585 4,482 4,353 3,015 2% 5% 52% SG&A Expenses 1,376 1,400 1,344 1,020-2% 2% 35% Total Expenditures 5,960 5,882 5,697 4,035 1% 5% 48% Comments Top Client contribution continues to rise, Volumes and Onsite billing rate rises Slightly lower S&M expenses offset higher travel and employee related expenses EBITDA 1,058 1,031 1, % -2% 9% Depreciation % 34% 51% Amortization jumped 75% qoq EBIT % -13% -4% Interest Other Income % 21% 28% Other Income included forex gain of Rs. 81mn vs. loss of Rs. 36mn qoq PBT , % -6% 3% Tax % 7% -12% Recurring PAT % -9% 9% Extraordinaries Reported PAT % -9% 9% EPS (Rs) % -9% 9% Higher due to Other Income and lower than expected taxes EBITDA Margin 15.1% 14.9% 15.9% 19.4% 15 bps -79 bps -430 bps EBIT Margin 10.2% 11.1% 12.1% 14.8% -89 bps -190 bps -465 bps PBT Margin 13.8% 13.4% 15.2% 18.8% 41 bps -139 bps -499 bps PAT Margin 10.4% 9.8% 11.9% 13.4% 67 bps -149 bps -299 bps Tax Rate 24.3% 27.0% 21.4% 28.5% -271 bps 292 bps -421 bps Slightly lower than expected tax rates Raj Kantawala (raj.kantawala@equirus.com) Page 4 of 12

5 Persistent Systems Ltd. Absolute TRADE Relative Benchmark -1% ATR in 14 Months Exhibit 9 a): Growth Metrics $ Revenue Growth Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 $ Revenues Growth (QoQ) 8.6% 2.2% 3.9% 0.0% 5.0% 4.2% 0.6% -1.8% 5.5% 8.1% 12.0% 4.3% Growth by Segment (QoQ %) Telecom -7.7% 4.5% -11.7% 20.9% -5.2% -0.2% 2.5% -10.2% -6.5% 32.6% -6.6% NR Infrastructure and Systems 8.8% 1.7% 7.9% -23.7% 7.7% 2.9% -0.8% -2.3% 6.5% 0.4% 22.8% NR Life Sciences 40.5% 1.4% 3.9% 0.0% 7.4% 5.7% 5.8% -1.8% 6.3% 2.8% 1.4% NR Financial Services 5.8% 13.2% -0.7% 9.4% 12.5% 17.8% 6.8% NR Growth by Geography (QoQ %) North America 4.9% 0.4% 6.7% 0.6% 5.3% 2.5% 1.5% -2.9% 7.8% 6.9% 13.1% 5.4% Europe -0.5% 39.3% 5.6% 6.6% 1.8% 17.4% -3.6% -9.0% 13.9% 0.1% 19.1% -19.0% Asia-Pacific 57.2% 1.2% -19.0% -10.6% 5.0% 12.4% -4.3% 17.1% -20.6% 29.7% -4.0% -9.1% Growth by client concentration (%) Top 15.3% -10.1% 10.7% -1.4% -4.1% -4.0% -5.1% 7.8% 2.6% 6.8% 63.5% 19.1% Top % 14.9% 11.1% -2.2% 0.3% 6.6% 1.2% -0.1% 4.9% 2.6% 2.1% 6.3% Top % 7.6% -5.5% 13.2% -9.2% 7.7% -0.5% 3.6% 2.2% 13.9% 0.6% -5.2% Non Top % 2.8% 0.7% -0.9% 13.3% 5.7% 2.4% -5.9% 7.3% 9.2% 1.0% -2.1% Exhibit 9 b): Segment Classification (new) Contribution ( $mn) Jun-16 Services 49.9 Digital 14.9 Alliance 31.4 Accelerite 8.6 Total Raj Kantawala (raj.kantawala@equirus.com) Page 5 of 12

6 Persistent Systems Ltd. Absolute TRADE Relative Benchmark -1% ATR in 14 months Company Snapshot Key Triggers Better scaling and sales from the IBM products, Acquisitions Aepona, Citrix, How we differ from Consensus Genwi and others aligning strongly, Onsite/Offshore mix, higher Utilization - Equirus Consensus % Diff Comment levels, Rupee depreciation EPS Sales PAT FY17E % FY18E % FY17E 29,331 29,433 0 % FY18E 33,739 33,735 0 % FY17E 2,906 3, % FY18E 3,637 4, % Our Key Investment arguments: Consensus numbers are before factoring in higher amortization going forward. We expect slower margin improvement due to investments in IBM deal. Strong client growth, acquisitions and Enterprise/Digital segments to drive growth Expenses of IBM deal to keep bottom-line growth in check Key Parameters FY16A FY17E FY18E FY19E Total Revenue ($Mn) Linear revenues ($mn) IP-led revenues($mn) Volume growth(billed man-months) 6.2% 6.2% 9.5% 8.6% Net employee count 9,264 9,939 10,714 10,864 Utilization(excI IP Led) 74.7% 75.3% 75.9% 75.9% EBIT Margin (%) 13.9% 10.6% 12.0% 12.6% PBT Margin (%) 17.1% 13.2% 14.4% 15.0% PAT Margin (%) 12.9% 9.9% 10.8% 11.2% Risk to Our View: Slowdown in pace of substitution of traditional business with Enterprise business, volatility in digital revenues, rupee appreciation. Sensitivity to Key Variables % Change % Impact on EPS Rupee Appreciation 1 % -40 bps Utilization 1 % +50 bps DCF Valuations & Assumptions Rf Beta Ke Term. Growth Debt/IC in Term. Yr 7.5 % % 4.0 % 0.0 % - FY17E FY18E FY19-21E FY22-31E FY32-36E Sales Growth 27 % 15 % 15 % 12 % 9 % NOPAT Margin 8 % 9 % 9 % 9 % 9 % IC Turnover RoIC 25.7 % 30.6 % 28.9 % 22.5 % 20.5 % Years of strong growth Valuation as on date (Rs) Valuation as on 30 th Sep Based on DCF, assuming 5 years of 15% Sales CAGR and 29% average ROIC, we derive current fair value of Rs. 565 and 30 th Sep 17 fair value of Rs Company Description: Persistent Systems Ltd is a mid-size Indian IT Company which has established itself as one of the leading players in Outsourced Product development. Comparable valuation Mkt Cap Price Target EPS P/E BPS P/B RoE Div Yield Company Reco. CMP Rs. Mn. Target Date FY16A FY17E FY18E FY16A FY17E FY18E FY16A FY17E FY16A FY17E FY18E FY16A FY17E Persistent TRADE , Sep ' % 17 % 18 % 1.2 % 1.4 % KPIT Tech TRADE , Sep ' % 16 % 15 % 0.8 % 0.6 % Cyient TRADE , th Sep ' % 18 % 18 % 1.4 % 1.8 % Raj Kantawala (raj.kantawala@equirus.com) Page 6 of12

7 Persistent Systems Ltd. Absolute TRADE Relative Benchmark -1% ATR in 14 months Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q16A 2Q16A 3Q16A 4Q16A 1Q17A 2Q17E 3Q17E 4Q17E 1Q18E 2Q18E 3Q18E 4Q18E FY16A FY17E FY18E FY19E Revenue 5,004 5,427 5,921 6,771 7,018 7,285 7,654 7,375 7,904 8,370 8,876 8,589 23,123 29,331 33,739 39,000 Direct Costs 3,015 3,314 3,622 4,353 4,585 4,732 4,923 4,786 5,063 5,326 5,642 5,525 14,305 19,025 21,556 24,826 SG&AExp. 1,020 1,096 1,188 1,344 1,376 1,439 1,531 1,456 1,561 1,632 1,753 1,675 4,647 5,802 6,621 7, EBITDA 969 1,018 1,110 1,074 1,058 1,115 1,200 1,132 1,279 1,413 1,481 1,389 4,171 4,504 5,562 6,521 Depreciation ,396 1,499 1,606 EBIT ,045 1,103 1,002 3,206 3,108 4,063 4,914 Interest Other Income PBT ,024 1, , ,100 1,236 1,304 1,210 3,956 3,866 4,850 5,839 Tax ,212 1,460 Recurring PAT ,974 2,906 3,637 4,379 Extraordinary Reported PAT ,974 2,906 3,637 4,379 EPS (Rs) Key Drivers Total Revenue (US$ mn) IP Led (US$ mn) USD-INR Rate Utilization 72.9% 76.1% 74.5% 75.2% 75.3% 75.9% 75.0% 75.0% 75.8% 76.3% 75.6% 76.0% 74.7% 75.3% 75.9% 75.9% Sequential Growth (%) Revenue 1 % 8 % 9 % 14 % 4 % 4 % 5 % -4 % 7 % 6 % 6 % -3 % Direct Costs 1 % 10 % 9 % 20 % 5 % 3 % 4 % -3 % 6 % 5 % 6 % -2 % EBITDA -4 % 5 % 9 % -3 % -2 % 5 % 8 % -6 % 13 % 10 % 5 % -6 % EBIT -5 % 5 % 11 % -5 % -13 % 8 % 10 % -9 % 18 % 15 % 6 % -9 % Recurring PAT -12 % 7 % 8 % 4 % -9 % -4 % 9 % -9 % 17 % 12 % 6 % -7 % EPS -12 % 7 % 8 % 4 % -9 % -4 % 9 % -9 % 17 % 12 % 6 % -7 % Yearly Growth (%) Revenue 15 % 17 % 20 % 36 % 40 % 34 % 29 % 9 % 13 % 15 % 16 % 16 % 22 % 27 % 15 % 16 % EBITDA 2 % 6 % 12 % 7 % 9 % 10 % 8 % 5 % 21 % 27 % 23 % 23 % 7 % 8 % 23 % 17 % EBIT 3 % 9 % 15 % 5 % -4 % -1 % -2 % -6 % 28 % 35 % 30 % 30 % 8 % -3 % 31 % 21 % Recurring PAT -2 % 1 % 4 % 6 % 9 % -2 % -1 % -13 % 13 % 32 % 27 % 29 % 2 % -2 % 25 % 20 % EPS -2 % 1 % 4 % 6 % 9 % -2 % -1 % -13 % 13 % 32 % 27 % 29 % 2 % -2 % 25 % 20 % Margin (%) EBITDA 19 % 19 % 19 % 16 % 15 % 15 % 16 % 15 % 16 % 17 % 17 % 16 % 18 % 15 % 16 % 17 % EBIT 15 % 14 % 15 % 12 % 10 % 11 % 11 % 10 % 12 % 12 % 12 % 12 % 14 % 11 % 12 % 13 % PBT 19 % 18 % 17 % 15 % 14 % 13 % 13 % 13 % 14 % 15 % 15 % 14 % 17 % 13 % 14 % 15 % PAT 13 % 13 % 13 % 12 % 10 % 10 % 10 % 10 % 10 % 11 % 11 % 11 % 13 % 10 % 11 % 11 % Raj Kantawala (raj.kantawala@equirus.com) Page 7 of12

8 Consolidated Financials Persistent Systems Ltd. Absolute TRADE Relative Benchmark -1% ATR in 14 months P&L (Rs Mn) FY16A FY17E FY18E FY19E Balance Sheet (Rs Mn) FY16A FY17E FY18E FY19E Cash Flow (Rs Mn) FY16A FY17E FY18E FY19E Revenue 23,123 29,331 33,739 39,000 Equity Capital PBT 3,956 3,866 4,850 5,839 Op. Expenditure 18,952 24,827 28,177 32,479 Reserve 15,593 17,632 20,283 23,603 Depreciation 965 1,396 1,499 1,606 EBITDA 4,171 4,504 5,562 6,521 Networth 16,393 18,432 21,083 24,403 Others Depreciation 965 1,396 1,499 1,606 Long Term Debt Taxes Paid 1, ,212 1,460 EBIT 3,206 3,108 4,063 4,914 Def Tax Liability Change in WC Interest Expense Minority Interest Operating C/F 2,531 3,707 4,562 5,481 Other Income Account Payables 1,651 2,196 2,488 2,865 Capex -1,647-1,508-1,700-1,900 PBT 3,956 3,866 4,850 5,839 Other Curr Liabi 2,870 3,259 3,749 4,333 Change in Invest Tax ,212 1,460 Total Liabilities & Equity 21,065 24,062 27,495 31,777 Others PAT bef. MI & Assoc. 2,974 2,906 3,637 4,379 Net Fixed Assets 4,453 4,840 5,541 6,335 Investing C/F -1,162-1,783-2,200-2,400 Minority Interest Capital WIP Change in Debt Profit from Assoc Others 1,985 1,985 1,985 1,985 Change in Equity Recurring PAT 2,974 2,906 3,637 4,379 Inventory Others -1, ,059 Extraordinaires Account Receivables 4,275 5,464 6,286 7,266 Financing C/F -1, ,059 Reported PAT 2,974 2,906 3,637 4,379 Other Current Assets 2,600 2,940 3,475 3,962 Net change in cash 103 1,081 1,375 2,021 FDEPS (Rs) Cash 7,752 8,833 10,208 12,230 RoE (%) 20 % 17 % 18 % 19 % DPS (Rs) Total Assets 21,065 24,062 27,495 31,777 RoIC (%) 19 % 17 % 18 % 19 % CEPS (Rs) Non-cash Working Capital 2,355 2,950 3,524 4,029 Core RoIC (%) 32 % 26 % 31 % 34 % FCFPS (Rs) Cash Conv Cycle Div Payout (%) 25 % 30 % 27 % 24 % BVPS (Rs) WC Turnover P/E EBITDAM (%) 18 % 15 % 16 % 17 % FA Turnover P/B PATM (%) 13 % 10 % 11 % 11 % Net D/E P/FCFF Tax Rate (%) 25 % 25 % 25 % 25 % Revenue/Capital Employed EV/EBITDA Sales Growth (%) 22 % 27 % 15 % 16 % Capital Employed/Equity EV/Sales FDEPS Growth (%) 2 % -2 % 25 % 20 % Dividend Yield (%) 1.2 % 1.4 % 1.6 % 1.7 % TTM P/E vs. 2 yr forward EPS growth TTM P/B vs. 2 yr forward RoE EPS Growth 25 x 20 x 15x 10x 5 x Ro E 5.5x 4.5x 3.5 x 2.5x 1.5 x Raj Kantawala (raj.kantawala@equirus.com) Page 8 of12

9 Persistent Systems Absolute TRADE Relative Benchmark -1% ATR in 14 Months Historical Consolidated Financials P&L (Rs Mn) FY13A FY14A FY15A FY16A Balance Sheet (Rs Mn) FY13A FY14A FY15A FY16A Cash Flow (Rs Mn) FY13A FY14A FY15A FY16A Revenue 12,945 16,692 18,913 23,123 Equity Capital PBT 2,630 3,427 3,901 3,956 Op. Expenditure 9,593 12,389 15,007 18,952 Reserve 9,783 11,823 13,255 15,593 Depreciation 783 1, EBITDA 3,352 4,303 3,906 4,171 Networth 10,183 12,223 14,055 16,393 Others , Depreciation 783 1, Long Term Debt Taxes Paid ,001 1,012 EBIT 2,569 3,277 2,968 3,206 Def Tax Liability Change in WC , Interest Expense Minority Interest Operating C/F 2,163 2,808 3,116 2,531 Other Income Account Payables ,651 Capex -1, ,647 PBT 2,630 3,427 3,901 3,956 Other Curr Liabi 1,575 2,351 3,020 2,870 Change in Invest , Tax Total Liabilities & Equity 12,730 15,434 17,749 21,065 Others , PAT bef. MI & Assoc. 1,876 2,493 2,907 2,974 Net Fixed Assets 4,677 4,362 4,093 4,453 Investing C/F -1, ,452-1,162 Minority Interest Capital WIP Change in Debt Profit from Assoc Others ,285 1,985 Change in Equity Recurring PAT 1,876 1,876 1,876 1,876 Inventory Others ,252 Extraordinaires Account Receivables 2,509 3,028 3,586 4,275 Financing C/F ,266 Reported PAT 1,876 1,876 1,876 1,876 Other Current Assets 782 1,312 1,452 2,600 Net change in cash 387 1,350 1, EPS (Rs) Cash 3,850 5,851 7,334 7,752 RoE (%) 20 % 22 % 22 % 20 % DPS (Rs) Total Assets 12,730 15,434 17,749 21,065 RoIC (%) 19 % 21 % 22 % 19 % CEPS (Rs) Non-cash Working Capital 1,397 1,556 1,489 2,355 Core RoIC (%) 29 % 33 % 32 % 32 % FCFPS (Rs) Cash Conv Cycle Div Payout (%) 22 % 23 % 32 % 25 % BVPS (Rs) WC Turnover P/E EBITDAM (%) 26 % 26 % 21 % 18 % FA Turnover P/B PATM (%) 14 % 15 % 15 % 13 % Net D/E P/FCFF Tax Rate (%) 29 % 27 % 25 % 25 % Revenue/Capital Employed EV/EBITDA Sales growth (%) 29 % 29 % 13 % 22 % Capital Employed/Equity EV/Sales FDEPS growth (%) 32 % 33 % 17 % 2 % Dividend Yield (%) 1.4 % 1.8 % 1.5 % 1.2 % Raj Kantawala (raj.kantawala@equirus.com) Page 9 of12

10 Persistent Systems Absolute TRADE Relative Benchmark -1% ATR in 14 Months Equirus Securities Pankaj Sharma Executive Director Research Analysts Sector/Industry Equity Sales Abhishek Shindadkar IT Services Vishad Turakhia Anirvan Sarkar Banking & Financial Services Subham Sinha Ashutosh Tiwari Auto, Metals & Mining Sweta Sheth Devam Modi Power & Infrastructure Dhaval Dama FMCG, Mid-Caps Dealing Room Maulik Patel Oil and Gas Ashish Shah Nimish Mehta Pharma Ilesh Savla Umesh Raut Industrials Jigar Chokshi Associates Manoj Kejriwal Ankit Choudhary Sandip Amrutiya Manoj Gori Compliance Officer Meet Chande Smita Sharma Parva Soni Pranav Mehta Raj Kantawala Saylee Warade Vikas Jain Rating & Coverage Definitions: Absolute Rating LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion and ATR >= 20% for rest of the companies SHORT: ATR <= negative 5% over investment horizon TRADE: Stocks that do not meet the criteria for either LONG or SHORT Relative Rating OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon BENCHMARK: likely to perform in line with the benchmark UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Target Price and Investment Horizon Target Price is a point value for stocks with Absolute rating of LONG or SHORT and a range value for stocks rated TRADE. Investment Horizon is set at a minimum 3 months to maximum 15 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for Registered Office: Equirus Securities Private Limited Unit No. 1201, 12th Floor, C Wing, Marathon Futurex, N M Joshi Marg, Lower Parel, Mumbai Tel. No: +91 (0) Fax No: +91- (0) Corporate Office: 3rd floor, House No. 9, Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge, S.G. Highway Ahmedabad Raj Kantawala (raj.kantawala@equirus.com) Page 10 of12

11 Persistent Systems Absolute TRADE Relative Benchmark -1% ATR in 14 Months one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion. Gujarat Tel. No: +91 (0) Fax No: +91 (0) Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Equirus Securities Private Limited Analyst Certification We, Abhishek Shindadkar/Raj Kantawala, authors to this report, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Disclaimers Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the Capital Market (Reg. No. INB ), Futures & Options Segment (Reg. No.INF ) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB ) of Bombay Stock Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH ). There are no disciplinary actions that have been taken by any regulatory authority. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker. ESPL/its affiliates provide investment banking services including but not limited to Private Equity, Mergers & Acquisitions, Structured Finance and Institutional Equities. ESPL/its affiliates might have, managed or co-managed public offering of securities of the subject company or have received a mandate from the subject company or might have received compensation from the subject company for investment banking or brokerage services in the past twelve months. ESPL & its affiliates, their directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL or its Analyst did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ESPL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ESPL has not been engaged in market making activity for the subject company. Research Analyst might have served as an employee of the subject company in the past. This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ESPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this document may come are required to inform themselves of, and to observe, such applicable restrictions. Please delete this document if you are not authorized to view the same. By reading this document you represent and warrant that you have full authority and all rights necessary to view and read this document. This document has been prepared solely for information purpose and does not constitute a solicitation to any person to buy, sell or subscribe a security. ESPL is not soliciting any action based on this report. The information and opinions contained herein is from publicly available data or based on information obtained in good faith from sources believed to be reliable but ESPL provides no guarantee as to its accuracy or completeness. The information contained herein stand on date, which are subject to change or modification. Any such changes could impact our interpretation of relevant information contained herein. While we would endeavour to update the information herein on reasonable basis. ESPL, its affiliates, their directors and employees are under no obligation to update or keep the information current. Also there may be regulatory, compliance, or other reasons that may prevent ESPL and its group companies from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document including the merits and risks involved. This document is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. ESPL and its group companies, employees, directors and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. ESPL/its affiliates do and seek to do business with companies covered in its research report. Thus, investors should be aware that the firm may have conflict of interest. Additional Disclaimer for U.S. Persons ESPL/its affiliates are not a registered broker dealer under the U.S. Securities Exchange Act of 1934, as amended (the 1934 act ) and under applicable state laws in the United States. In addition Equirus is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Raj Kantawala (raj.kantawala@equirus.com) Page 11 of12

12 Persistent Systems Absolute TRADE Relative Benchmark -1% ATR in 14 Months Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Equirus, including the products and services described herein are not available to or intended for U.S. persons. The information contained in this Report is not intended for any person who is a resident of the United States of America or a resident of any jurisdiction, the laws of which imposes prohibition on soliciting the securities business in that jurisdiction without going through the registration requirements and/or prohibit the use of any information contained in this website. This Report and its respective contents does not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered as an advertisement tool. "U.S. Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US Persons" under certain rules. Disclosures Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest Analyst/ESPL/Associate/Relatives financial interest Analyst/ESPL/Associate/Relatives actual/beneficial ownership of 1% or more Analyst/ESPL/Associate/Relatives material conflict of interest Whether ECPL managed any public offering in past 12 months * Associate means individual who assist Analyst No No No No Raj Kantawala (raj.kantawala@equirus.com) Page 12 of12