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.

The 54,19,706 equity shares IPO received bids for nearly 3 crore shares. The issue consists of a fresh issue of 41,39,000 equity shares and an offer for sale of 12,80,706 equity shares by Dr Shridhar Bhalchandra Shukla and Vijayalaxmi Shridhar Shukla and Ashutosh Vinayak Joshi.

The company will raise around Rs 157.17-168 crore at price band of Rs 290-310 per equity share. Promoters' holding will be reduced to 38.83% from 43.31% post issue.

Investment Advisor, SP Tulsian advised investors to subscribe to the issue even at the upper price band of Rs 310. Nirmal Bang, India Infoline, Aditya Birla Money, Swastika Investmart and RR Financial Consultants etc have also advised investors to subscribe to the issue.

"At the upper band of Rs 310 per share and based on historic earnings, which indicates an EPS of Rs 30 for FY10, it is issued at a PE multiple of about 10 times. The company has a niche in information technology sector and hence it may take the share price to rule at a PE of 12-13 times. This leaves room for 20% rise from the upper band, on listing," Tulsian said.

India Infoline in its report said, "Persistent Systems (PSL) is a niche player in the outsourced software product development (OPD) segment. The company develops and maintains software systems and solutions and also augments the functionality of customers’ existing software products. It caters to various segments including telecommunications, life sciences, infrastructure and systems. The company proposes to raise Rs 1.5 billion, which will be utilized for development facilities at Pune and Nagpur along with hardware procurement.  Being a dominant player in the OPD segment, it is well-poised to capitalize on the growth of the IT industry. We recommend subscribing to the issue."