Wednesday, March 17, 2010

Persistent Systems Ltd IPO

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.

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