Persistent Systems Ltd is making an Initial Public Offer (IPO) of 5,419,706 equity shares of Rs. 10 each (face value) at the price band of Rs. 290-310 per share. The IPO consists of a fresh issue of 4,139,000 equity shares and an offer for sale of 1,280,706 equity shares by Dr. Shridhar Bhalchandra Shukla, Vijayalaxmi Shridhar Shukla and Ashutosh Vinayak Joshi. The issue comprises a net issue to the public of 4,877,730 shares and a reservation of up to 541,976 equity shares eligible employees. The issue will constitute 13.55% of the fully diluted post issue paid-up capital of the Company and the net issue will constitute 12.19% of the fully diluted post issue paid-up capital of the Company.
Valuation and recommendation:
Based on our valuation, we recommend investors to subscribe to the issue. At a lower price band, the Company offers FY11E EV/EBITDA of 5.9x which is at a discount to peers’ average (Mindtree, Polaris Software, Hexaware, Mastek and Allied Digital) of 6.3x. Moreover, PSL proposes a comparable ROE of 20.1% for FY11E to the peers’ average of 20.7%. Although at upper price band, the FY11E EV/EBITDA of 6.3x appears in line with peer average, in our view, the issue may command some premium given high expected EBITDA margin of 23% for FY11E compared to 17.9% for peers’ average.
The issue closes on March 19, 2010.