Persistent Systems IPO overbid; should you invest?

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Persistent Systems IPO overbid; should you invest?

The initial public offering (IPO) of Pune based software product development company Persistent Systems, which closes on March 19, has been subscribed 5.53 times, as per data available on the NSE website.

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Sharekhan in its report said, "Given the company's high growth rates historically and niche positioning in a fast-growing segment, higher premium pricing and solid client relationships, the slight premium over its peers is more than justified and we believe that the premium could widen further in future."

"Based on price of Rs 310 (upper end of the price band) and company's annualized earnings (on 9M 2010 results) the company will trade at a P/E multiple of 11.68x which is higher than its peers. However, considering that company's business is superior as compared to its peer group, we believe that it should command a premium and therefore trade well above the P/E multiple of its peers. PSL has recorded strong growth in top-line and profitability in Q3 FY 2010 while its peer has witnessed a muted growth after excluding the impact of acquisitions. PSL's Sales was Rs 158 crore and EPS was Rs 7.72 in Q3 FY 2010. Assuming that PSL registers similar top-line and margins in Q4 FY 2010 as we saw in Q3 FY 2010, its 2H FY 2010 results would be better than its 1H FY 2010 top-line of Rs 271 Crs and EPS 11.13 indicating that company is recovering rapidly from the downturn. Also, company looks attractive in terms of P/BV and EV/Sales multiple given that company is expected to grow at a rapid pace as compared to its peers. Therefore, we recommend subscribe to this issue," Nirmal Bang said.

Swastika Investmart in its report said, "Considering the strong financial performance shown by company in past and its future potential we recommend applying for the IPO with price target of Rs 350 in medium term. Good listing gains can also be seen if market sentiments in general remain good."

"By considering the factors such as - product profile, higher retention ratio, debt free, relatively high cash and investments position and strong investor base, we recommend subscribe on the issue with long-term perspective," according to Aditya Birla Money.

RR Financial Consultants in its report said, "A strong outsourced software-products development player, considering the company's strong performance in key operating metrics and its sound positioning and growth prospects of the segment where it operates. At Rs 310 (upper end of the price band), the share would trade at 12 times its likely 2009-10 per-share earnings on a post-offer equity base. This is at a discount to mid-tier IT companies such as InfoTech Enterprises, Sasken Communications and KPIT Cummins, which are partly comparable to Persistent Systems as being a pure OPD product company has no listed peers. Investor with longer time horizon can consider this issue."