!!SAI PARSADAM!!
BIG BOSS
VIKAS PARSHURAM SAMWATSARE
Accumulate Persistent Systems Ltd. For Target Rs.521
Management Exuberates Confidence
We attended the Investors and Analyst Day organized by Persistent Systems Ltd. (Persistent) at Pune on the 14th of December 2012. The management exuberated a lot of confidence on the overall strategy to remain focused on product development in new technologies and its Intellectual Property (IP) roadmap going ahead. For FY14E, the strategy remains by and large remain unchanged, as the company believes that the industry is still in the early stages of adapting newer technologies (including cloud, mobility, analytics and collaboration).
KEY HIGHLIGHTS
• Business Strategy Update:
The company’s strategy hovers around four prime areas:
(a) Product Engineering Business – providing end-to-end services
(b) Sell With Partnerships – the company invests in learning a platform of a large ISV to become its partner, maintains a healthy relationship with the partner and co-sells the partner’s products by having deep domain knowledge on the same
(c) Technology Consulting – the company has added a large team of consultants in India and USA. The consultants are specialists in various fields of new technologies
(d) IP strategy.
• It’s all about IP:
Most of the company’s recent success in FY12 and H1FY13 is attributed to its approach on the IP business. Over the past year and a half, the IP business of Persistent Systems has grown ~4x. Simultaneously, margins have grown from 18% to 27% at present. Persistent Systems has the highest margins in the midsize IT space. The growth in margins could also be attributed to IP, as it is highly non-linear in nature beyond a certain period of time.
The IP strategy includes four addressable areas:
(a) request based IP solutions for enterprises
(b) acquiring non-strategic assets from customers
(c) acquiring existing assets with aligned focus of the company
(d) building internal R&D based IP. The rationale behind acquiring non-strategic assets from customers is to invest, operate and monetize the same. With greater number of firms consolidating their non-core assets (including IP) and IP being an investment heavy proposition, acquiring nonstrategic assets is a low-hanging fruit for Persistent Systems. The ROI cycle for acquired IP assets is typically six months, compared to in-house IPs’ ROI of approximately one year. In the past year and a half, the company has acquired Openwave’s location business, Doyanze’s ‘rcloud’ solution and IP portfolio (including 72 employees in Malaysia and 12 in the USA). The management will actively seek for further acquisition targets in this space.
• Outlook on Top Client (IBM) is encouraging:
Persistent Systems receives 20.7% of its total revenues from IBM, which is its top client. This account has been growing rapidly over the past few quarters due to long standing relationship of over eight years and the knowledge and expertise that Persistent possesses about IBM’s products. This helps Persistent to be IBM’s first choice partner for any new initiative on product development. This deeper client engagement exercise and domain expertise will help Persistent to achieve robust traction from its top client. During the discussions, the management indicated that IBM had already frozen its R&D spending plans for CY13E and the outlook seems bright.
Industry Views:
Decision making is increasingly moving from CIO (Chief Information Officer) to the Heads of Line of Business (LOBs):
The company’s management observes that decisions are increasingly taken by the LOB executives while the CIO budgets are reducing.
Wipro’s management has also agreed to this trend, as they too believe that the CIO position could cease to exist in the next five years (Reference: Wipro Analyst presentation, Analyst meeting, June 2012). In our view, the trend could revive the pace of decision-making, which has slowed down considerably in the past year or two due to uncertain global economic conditions. Our conversation with the management teams of some unlisted mid-sized IT companies suggests that CIOs are very often in a position whereby they have to make critical business decisions without having complete knowledge of the relevant process. This leads to greater due-diligence undertaken by the CIO for understanding the problem. In contrast, the LOB executives are fully aware of the situation in their own verticals and are thus better equipped with information to make critical decisions. Thus, the time required for gathering the requisite information could be reduced, while the chances are that better decisions could be taken by the LOS execs than the CIO.
VALUATION
Investment thesis and target price remain unchanged Our thesis of Persistent being able perform due to its inherent niche business model, presence in the right business at the right time and investments in front end sales has been panning out well at present. We continue to be positive on this business and regard Persistent as one of the key beneficiaries of growth in newer technologies like cloud, mobility, analytics and collaboration. At `486, the company is trading relatively closer to its fair value (i.e. closer to 10x), which is at the highest end of our midcap PE band of 6.5-10). Persistent is currently trading at 9.2x the FY13E EPS of `52.6 and 9.3x the FY14E EPS of `52.1. We continue to value the company at 10x the FY14E EPS and arrive at a target price of `521, implying an upside of 8%. We advise investors to ACCUMULATE the stock at the current price.
We attended the Investors and Analyst Day organized by Persistent Systems Ltd. (Persistent) at Pune on the 14th of December 2012. The management exuberated a lot of confidence on the overall strategy to remain focused on product development in new technologies and its Intellectual Property (IP) roadmap going ahead. For FY14E, the strategy remains by and large remain unchanged, as the company believes that the industry is still in the early stages of adapting newer technologies (including cloud, mobility, analytics and collaboration).
KEY HIGHLIGHTS
• Business Strategy Update:
The company’s strategy hovers around four prime areas:
(a) Product Engineering Business – providing end-to-end services
(b) Sell With Partnerships – the company invests in learning a platform of a large ISV to become its partner, maintains a healthy relationship with the partner and co-sells the partner’s products by having deep domain knowledge on the same
(c) Technology Consulting – the company has added a large team of consultants in India and USA. The consultants are specialists in various fields of new technologies
(d) IP strategy.
• It’s all about IP:
Most of the company’s recent success in FY12 and H1FY13 is attributed to its approach on the IP business. Over the past year and a half, the IP business of Persistent Systems has grown ~4x. Simultaneously, margins have grown from 18% to 27% at present. Persistent Systems has the highest margins in the midsize IT space. The growth in margins could also be attributed to IP, as it is highly non-linear in nature beyond a certain period of time.
The IP strategy includes four addressable areas:
(a) request based IP solutions for enterprises
(b) acquiring non-strategic assets from customers
(c) acquiring existing assets with aligned focus of the company
(d) building internal R&D based IP. The rationale behind acquiring non-strategic assets from customers is to invest, operate and monetize the same. With greater number of firms consolidating their non-core assets (including IP) and IP being an investment heavy proposition, acquiring nonstrategic assets is a low-hanging fruit for Persistent Systems. The ROI cycle for acquired IP assets is typically six months, compared to in-house IPs’ ROI of approximately one year. In the past year and a half, the company has acquired Openwave’s location business, Doyanze’s ‘rcloud’ solution and IP portfolio (including 72 employees in Malaysia and 12 in the USA). The management will actively seek for further acquisition targets in this space.
• Outlook on Top Client (IBM) is encouraging:
Persistent Systems receives 20.7% of its total revenues from IBM, which is its top client. This account has been growing rapidly over the past few quarters due to long standing relationship of over eight years and the knowledge and expertise that Persistent possesses about IBM’s products. This helps Persistent to be IBM’s first choice partner for any new initiative on product development. This deeper client engagement exercise and domain expertise will help Persistent to achieve robust traction from its top client. During the discussions, the management indicated that IBM had already frozen its R&D spending plans for CY13E and the outlook seems bright.
Industry Views:
Decision making is increasingly moving from CIO (Chief Information Officer) to the Heads of Line of Business (LOBs):
The company’s management observes that decisions are increasingly taken by the LOB executives while the CIO budgets are reducing.
Wipro’s management has also agreed to this trend, as they too believe that the CIO position could cease to exist in the next five years (Reference: Wipro Analyst presentation, Analyst meeting, June 2012). In our view, the trend could revive the pace of decision-making, which has slowed down considerably in the past year or two due to uncertain global economic conditions. Our conversation with the management teams of some unlisted mid-sized IT companies suggests that CIOs are very often in a position whereby they have to make critical business decisions without having complete knowledge of the relevant process. This leads to greater due-diligence undertaken by the CIO for understanding the problem. In contrast, the LOB executives are fully aware of the situation in their own verticals and are thus better equipped with information to make critical decisions. Thus, the time required for gathering the requisite information could be reduced, while the chances are that better decisions could be taken by the LOS execs than the CIO.
VALUATION
Investment thesis and target price remain unchanged Our thesis of Persistent being able perform due to its inherent niche business model, presence in the right business at the right time and investments in front end sales has been panning out well at present. We continue to be positive on this business and regard Persistent as one of the key beneficiaries of growth in newer technologies like cloud, mobility, analytics and collaboration. At `486, the company is trading relatively closer to its fair value (i.e. closer to 10x), which is at the highest end of our midcap PE band of 6.5-10). Persistent is currently trading at 9.2x the FY13E EPS of `52.6 and 9.3x the FY14E EPS of `52.1. We continue to value the company at 10x the FY14E EPS and arrive at a target price of `521, implying an upside of 8%. We advise investors to ACCUMULATE the stock at the current price.
Buy Mahindra and Mahindra Ltd
Robust topline
growth aided by volume growth in automotive segment and price
increases, subdued farm equipment business, higher other income (higher
dividends received from subsidiaries) were the key highlights of M&M
Q2FY13 earnings. We expect this momentum to continue led by its strong
portfolio and new launches across segments in automotive segment.
Although, the tractor industry continues to remain under pressure, we
expect the tractor industry to revive in H2FY13 on the back of improved
monsoons leading to improved rabi crop . At CMP of Rs.880, the stock is
trading at 14.3x and 12.0x its estimated FY13 and FY14 earnings
estimates and we recommend a BUY on the stock.
Key Takeaways
• Mahindra & Mahindra (M&M) posted 32.2% yoy growth in revenues to Rs. 9813 crore led by a strong volume growth in the automotive segments (+19.5%YoY) and improved realizations on account of the price increase of 1.6% taken in the month of April. Although, operating profits were higher by 28% yoy to Rs. 1,118.9 crore margins were lower by 50 bps and stood at 11.4%. Other income increased by 25.9% on YoY basis mainly on account of dividend received from subsidiaries (Rs 177.12 crore). Subsequently, profits were higher by 22.3% yoy to Rs. 901.8 crore as compared to Rs. 737.4 crore in Q2FY12.
• Automotive segment revenues were higher by 58% yoy to Rs. 7149.8 crore aided by a 19.5% yoy growth in volumes to 1,41,237 units. UW segment has shown a volume growth of 32% aided by the incremental volumes of XUV 500. M&M expects to maintain XUV production to 4500-5000 per month. M&M has bookings for 15000 XUV’s (waiting time of 3 months). Quanto have received 50,000 inquires since its launch while current booking are ~6000 – 7000 units (waiting time of +2 months).Current production is 2500 per month.
• Farm equipment segment registered a de growth of 6% yoy in total revenues to Rs. 2653.44 crore mainly due to 13.3% yoy decline in tractor volumes. The tractor volumes for Q2FY13 stood at 49840 units. The company attributed the decline in tractors volumes to initial weak monsoon. However, the company expects H2FY13 volumes to improve ; especially Q4FY13 due to pick in rainfall leading to better rabi crop. M&M has
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Buy Suven Life Sciences Ltd For Target Rs.31.00
Suven Life Sciences Ltd is in business of design, manufacture & supply of Bulk Actives,Drug Intermediates & Fine Chemicals, catering to needs of Life Science Industry.
* During the Second quarter, the robust growth of Net Profit is increased by 153.34% to Rs. 64.88 million.
* The Company has achieved export revenue of Rs.19358 lakhs out of total turnover of Rs.20421 lakhs representing 95%.
* Suven Life Sciences Ltd on October, 2012 titled "Suven Life Sciences bags Pharmexcil's "Platinum Patent Award".
* The company expand drug discovery activity for new therapeutic indication in CNS arena viz Major Depressive
Disorder a preclinical compound SUVN-911 move to IND enabling toxicology studies in current fiscal 2012-13.
* The company has a total of 18 inventions and was granted a total of 541 product patents and 36 process patents until March 2012 in various countries.
* Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 39% over 2011 to 2014E respectively.
Investment Highlights
Results updates- Q2 FY13,
Suven Life Sciences Ltd is in the business of design, manufacture and supply of Bulk Actives, Drug Intermediates &
Fine Chemicals, reported its financial results for the quarter ended 30th Sep, 2012. The Second quarter witnesses a healthy increase in overall sales as well as profitability of the company.
The company’s net profit jumps to Rs.64.88 million against Rs.25.61 million in the corresponding quarter ending of previous year, an increase of 153.34%. Revenue for the quarter rose 4.61% to Rs.502.59 million from Rs.480.44 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.0.56 a share during the quarter, registering 153.34% increase over previous year period. Profit before interest, depreciation and tax is Rs.109.97 millions as against Rs.40.07 millions in the corresponding period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.27.00, the stock P/E ratio is at 15.41 x FY13E and 11.28 x FY14E respectively.
* Earnings per share (EPS) of the company for the earnings for FY13E and FY14E are seen at Rs.1.75 and Rs.2.39 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 39% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 9.46 x for FY13E and 7.71 x for FY14E.
* Price to Book Value of the stock is expected to be at 2.13 x and 1.79 x respectively for FY13E and FY14E.
* We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.31.00 for Medium investment.
Key Takeaways
• Mahindra & Mahindra (M&M) posted 32.2% yoy growth in revenues to Rs. 9813 crore led by a strong volume growth in the automotive segments (+19.5%YoY) and improved realizations on account of the price increase of 1.6% taken in the month of April. Although, operating profits were higher by 28% yoy to Rs. 1,118.9 crore margins were lower by 50 bps and stood at 11.4%. Other income increased by 25.9% on YoY basis mainly on account of dividend received from subsidiaries (Rs 177.12 crore). Subsequently, profits were higher by 22.3% yoy to Rs. 901.8 crore as compared to Rs. 737.4 crore in Q2FY12.
• Automotive segment revenues were higher by 58% yoy to Rs. 7149.8 crore aided by a 19.5% yoy growth in volumes to 1,41,237 units. UW segment has shown a volume growth of 32% aided by the incremental volumes of XUV 500. M&M expects to maintain XUV production to 4500-5000 per month. M&M has bookings for 15000 XUV’s (waiting time of 3 months). Quanto have received 50,000 inquires since its launch while current booking are ~6000 – 7000 units (waiting time of +2 months).Current production is 2500 per month.
• Farm equipment segment registered a de growth of 6% yoy in total revenues to Rs. 2653.44 crore mainly due to 13.3% yoy decline in tractor volumes. The tractor volumes for Q2FY13 stood at 49840 units. The company attributed the decline in tractors volumes to initial weak monsoon. However, the company expects H2FY13 volumes to improve ; especially Q4FY13 due to pick in rainfall leading to better rabi crop. M&M has
*********************************************************************************
Buy Suven Life Sciences Ltd For Target Rs.31.00
Suven Life Sciences Ltd is in business of design, manufacture & supply of Bulk Actives,Drug Intermediates & Fine Chemicals, catering to needs of Life Science Industry.
* During the Second quarter, the robust growth of Net Profit is increased by 153.34% to Rs. 64.88 million.
* The Company has achieved export revenue of Rs.19358 lakhs out of total turnover of Rs.20421 lakhs representing 95%.
* Suven Life Sciences Ltd on October, 2012 titled "Suven Life Sciences bags Pharmexcil's "Platinum Patent Award".
* The company expand drug discovery activity for new therapeutic indication in CNS arena viz Major Depressive
Disorder a preclinical compound SUVN-911 move to IND enabling toxicology studies in current fiscal 2012-13.
* The company has a total of 18 inventions and was granted a total of 541 product patents and 36 process patents until March 2012 in various countries.
* Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 39% over 2011 to 2014E respectively.
Investment Highlights
Results updates- Q2 FY13,
Suven Life Sciences Ltd is in the business of design, manufacture and supply of Bulk Actives, Drug Intermediates &
Fine Chemicals, reported its financial results for the quarter ended 30th Sep, 2012. The Second quarter witnesses a healthy increase in overall sales as well as profitability of the company.
The company’s net profit jumps to Rs.64.88 million against Rs.25.61 million in the corresponding quarter ending of previous year, an increase of 153.34%. Revenue for the quarter rose 4.61% to Rs.502.59 million from Rs.480.44 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.0.56 a share during the quarter, registering 153.34% increase over previous year period. Profit before interest, depreciation and tax is Rs.109.97 millions as against Rs.40.07 millions in the corresponding period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.27.00, the stock P/E ratio is at 15.41 x FY13E and 11.28 x FY14E respectively.
* Earnings per share (EPS) of the company for the earnings for FY13E and FY14E are seen at Rs.1.75 and Rs.2.39 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 39% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 9.46 x for FY13E and 7.71 x for FY14E.
* Price to Book Value of the stock is expected to be at 2.13 x and 1.79 x respectively for FY13E and FY14E.
* We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.31.00 for Medium investment.
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