PERSISTENT SYSTEMS

EQUITY RESEARCH - MODEL

DISCUSSION ON EQUITY RESEARCH MODEL - PERSISTENT SYSTEMS
Investment stocks

fundamental approach

decision should I invest in the stock at the CMP

value of company = Intrinsic Value > CMP more than 15%

Project Company
starting t = 0 does not start at t =0
life is finite life is infinite (going concern)
assumptions were given to us we have figure out the drivers and take assumptions

IMPORTANT SECTIONS OF AN ANNUAL REPORT --> INVESTMENT ANALYSIS

1 CHAIRMAN'S SPEECH VISION & MISSION
2 DIRECTOR'S REPORT OPERATIONAL EXCELLENCE
3 MANAGEMENT DISCUSSION & ANALYSIS (MDA) COMMENTARY ON LATEST RE
4 INDUSTRY REPORT DEMAND & SUPPLY OF THE S
5 FINANCIAL STATEMENT DATA (IS/BS/CFS)

Total Revenue = Price x Quantity

ANALYSIS OF MARUTI REVENUES
ASP (P)

Maruti x

Number of cars sold (Q)

ANALYSIS OF AIRTEL REVENUES

ARPU = MONTHLY BILL
MOBILE
SUBSCRIBERS

AIRTEL BROADBAND

DTH

ANALYSIS OF IT SERVICES REVENUES

HOSPITAL IN USA
 WANTS SOFTWARE FOR MGMT.

PERSISTENT IS THE VENDOR TO BUILD THE SOFTWARE

NO SALEABLE INTELLECTUAL PROPERTY

SO CHARGE THE CLIENT FOR EFFORT

HOW TO MEASURE THE EFFORT

MAN DAYS OR MAN MONTHS OR MAN HOURS

METRIC TO REVENUE ESTIMATION

NO. OF MONTHS TOTAL TOTAL

SERVICES PROVIDED DEVELOPE OF EFFORT REVENUE
AT RS EFFORT MONTHS RATE PER MONTH $/MONTH (USD)
ONSITE = GDC 1 10 10 10000 100000
OFFSHORE = INDIA 10 10 100 1000 100000
200000
50
10,000,000

REVENUE MODEL - PERSISTENT SYSTEMS

GDC - BILLING RATE (USD/MONTH)

GDC GDC - MONTHS BILLED

SERVICES
PERSISTENT INDIA INDIA - BILLING RATE (USD/MONTH)

INDIA - MONTHS BILLED

IP LED
IP - BILLING RATE (USD/MONTH)

IP- MONTHS BILLED

PERFECT COMPETITION
ENTRY BARRIER LOW
INFLUENCE OF PERSISTENT ON BILLING RATE NOT THERE

VALUATION OF COMPANY

DISCOUNTED CASH FLOW VALUATION RELATIVE VALUATION

PRESENT VALUE OF FUTURE CASH FLOWS IS FIRM VALUE LAW OF ONE PRICE
BASED ON VALUATION RATIO
FREE CASH FLOW TO FIRM (FCFF) = THE AMOUNT OF CASH P/E, EV/REVENUE, P/S,P/BV
GENERATED FOR ALL STAKEHOLDERS OF FIRM
FREE CASH FLOW TO FIRM (FCFF) = THE AMOUNT OF CASH
GENERATED FOR ALL STAKEHOLDERS OF FIRM
STAKEHOLDERS = DEBT + EQUITY FIND THE RATIOS FOR PEERS
THIS IS ALSO CALLED AS ENTERPRISE VALUE (EV)
EV = DEBT + EQUITY - CASH FIND THE INDUSTRY MEDIAN
25TH , 75TH PERCENTILE
FCFF = EBIT*(1-TAX) + D&A - PURCHASE OF ASSETS + CHG IN WC
USE THE INDUSTRY MEDIAN
DICOUNT RATE FOR FCFF IS WACC OR PERCENTILE VALUE
(CONSIDERING BOTH STAKEHOLDERS , DEBT & EQUITY) TO FIND TARGET PRICE OF OU
WACC = We * Ke + Wd * Kd

We = MARKET VALUE OF EQUITY / TOTAL CAPITAL

MARKET VALUE OF EQUITY = PRICE OF STOCK * NUMBER OF SHARES

Wd = 1 - We
Kd = INT RATE * (1 - TAX RATE)
Ke = Rf + BETA*(Rm - Rf) <=== CAPITAL ASSET PRICING MODEL (CAPM)

EV = PV OF ALL FCFF DISCOUTNED AT WACC

MATHEMAICALLY , EV WOULD BE

WE CAN ESTIMATE THE FCFF FOR NEXT 6 YEARS USING OUR FORECASTS
FOR THE REMAINING YEARS TILL INFINITE WE USE 2 STAGE BASED H-MODEL
OF VALUATION
THIS MODEL CONSIDERS THE BUSINESS LIFE CYCLE STAGES AND MODERATES THE
GROWTH RATE
STAGE -1 : LINEAR DECLINE IN GROWTH RATE OF PROFITS OR CASH FLOWS
STAGE -2 : TERMINAL VALUATION BASED ON GORDON GROWTH MODEL
GORDON GROWTH MODEL
PV = A/r

FROM EV WE CAN ESTIMATE THE EQUITY VALUE

AND THE INTRINSIC PRICE TO TAKE INVESTMENT DECISION

EQUITY VALUE = EV - DEBT + CASH

INTRINSIC PRICE = EQUITY VALUE / NUMBER OF SHARES
and take assumptions

ISION & MISSION

PERATIONAL EXCELLENCE
OMMENTARY ON LATEST RESULTS
EMAND & SUPPLY OF THE SECTOR
 <== TOTAL REVENUE ($)
<== INR/USD
<== REVENUE IN INR MILLION

ELATIVE VALUATION
AW OF ONE PRICE
ASED ON VALUATION RATIOS
/E, EV/REVENUE, P/S,P/BV
IND THE RATIOS FOR PEERS

IND THE INDUSTRY MEDIAN OR

5TH , 75TH PERCENTILE

SE THE INDUSTRY MEDIAN

OR PERCENTILE VALUE
O FIND TARGET PRICE OF OUR CASE
 REVENUE
DRIVERS

IS

COST DRIVERS

CFS

ASSET
SCHEDULE

BS

BALANCE SHEET
RATIO

HISTORICAL
DATA

ANNUAL
REPORT
ESTIMATES OF
CASH FLOW VALUATION

Intirinsic Price >

CMP

+15% BUY
FORECASTS INVESTMENT
DECISION
 DCF

RELATIVE
VALUATION
Persistent Systems
Layout
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)
Date Mar/13 Mar/14 Mar/15 Mar/16
Year 2013 - A 2014 - A 2015 - A 2016 - A
Mar/17 Mar/18 Mar/19 Mar/20 Mar/21 Mar/22 Mar/23 Mar/24
2017 - A 2018 - A 2019 - E 2020 - E 2021 - E 2022 - E 2023 - E 2024 - E
 Revenue
1. GDC
2. India
3. IP Led

1. GDC 2. India
a. Person months billed a. Person months billed
b. Average revenue per person month b. Average revenue per person month

a. Person months billed a. Person months billed

i. Person months billable i. Person months billable
ii. Utilisation % ii. Utilisation %

i. Person months billable i. Person months billable

: Number of billable employees*12 : Number of billable employees*12
3. IP Led
a. Person months billed
b. Average revenue per person month

a. Person months billed

i. Person months billable
ii. Utilisation %

i. Person months billable

: Number of billable employees*12
As you have tried filling the missing values - you must have faced some difficulties
Overcoming these challenges are important as you will be required to do this kind of work in your job!
As we go along for the next 2 sessions, you can use this file - so that you can do your work and match it with your group!!
Following are the tasks you need to follow to complete the 4 steps which you must have memorised till now :)

Step 1 EBITDA Forecast

Step 2 EBIT Forecast
Step 3 PAT Forecast
Step 4 BS, CFS Forecast

Note: You will be required to take assumptions : Please discuss in your group and take similar assumptions
These assumptions can be changed later after the model is complete and everyone in one group has similar figures

Task 1 Sheet "Revenue Drivers" -> Try to complete the same after understanding Revenue Schema
Task 2 Sheet "Cost Drivers" -> Try to complete all operating expenses and do EBITDA Forecast
Task 3 Sheet "Asset Schedule" -> Try to complete the schedule and do EBIT Forecast
Task 4 As debt is negligible -> You can keep interest constant in Income Statement and debt constant in Balance sheet
So, you can get away without making a debt schedule in this model -> complete PAT Forecast
Task 5 Sheet "Balance Sheet" -> Keep Cash blank, Use asset schedule to link fixed assets, Use PAT to link equity (Rest of
Task 6 Create a new sheet using the sheet "LAYOUT" -> Name the new sheet "CFS" i.e. Cash Flow Statement
Task 7 Complete CFS and match the BS
Task 8 Think of working capital assumptions and change a few things in BS (Think!!)
Task 9 After task 8, BS will get mismatch -> Try to match it back by making changes in CFS
Task 10 Complete till Task 9 in this session, and leave DCF and Relative Valuation for next session
 match it with your group!!
orised till now :)

assumptions
up has similar figures

debt constant in Balance sheet

PAT Forecast
, Use PAT to link equity (Rest of the things keep constant for now)
ash Flow Statement
Persistent Systems
Income Statement
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)
Date Mar/13 Mar/14 Mar/15 Mar/16 Mar/17
Year 2013 - A 2014 - A 2015 - A 2016 - A 2017 - A
Revenue from Operations 12,945 16,692 18,913 23,123 28,784
Other Income 286 310 938 773 958
Total Revenue 13,231 17,002 19,851 23,896 29,743

Employee Benefit expense 7,188 9,090 11,114 14,068 17,649

Cost of technical professionals 536 906 1,090 1,587 2,178
COGS 7,724 9,995 12,203 15,654 19,827

Gross Profit 5,507 7,006 7,647 8,242 9,916

Other Expenses 2,094 2,553 2,806 3,554 4,304

EBITDA 3,413 4,453 4,842 4,688 5,612

Depreciation 783 1,026 939 990 1,490

EBIT 2,630 3,427 3,903 3,698 4,122

Interest Expense 0 1 3 1 1
EBT 2,630 3,427 3,900 3,697 4,121

Exceptional Items - - - - (114)

PBT 2,630 3,427 3,900 3,697 4,007

Tax Expense 754 934 993 924 992

PAT 1,876 2,493 2,906 2,773 3,015

EPS
Basic 48.62 64.07 36.84 34.74 37.68
Diluted 46.90 31.16 36.33 34.66 37.68

Number of Shares
Basic 38.59 38.91 78.89 79.82 80.01
Diluted 40.00 80.00 80.00 80.01 80.01
Mar/18 Mar/19 Mar/20 Mar/21 Mar/22 Mar/23 Mar/24
2018 - A 2019 - E 2020 - E 2021 - E 2022 - E 2023 - E 2024 - E
30,337
1,191
31,528

18,316
3,181
21,497

10,031

4,153
5,878

1,585
4,293

1
4,293

-
4,293

1,062
3,231

40.39
40.39

79.99
79.99
Persistent Systems
Balance Sheet
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)
Date Mar/13 Mar/14 Mar/15 Mar/16 Mar/17
Year 2013 - A 2014 - A 2015 - A 2016 - A 2017 - A
Property, Plant and Equipment 2,800 2,785 3,021 2,968 2,768
Capital work-in-progress 1,174 307 40 24 48
Goodwill - 23 24 78 76
Other Intangible assets 702 1,269 995 1,325 2,515
Intangible assets under development - - - 242 241
Investments 173 823 2,308 1,469 2,339
Loans 199 138 58 86 136
Other non-current financial assets - - 13 870 922
Deferred tax assets (net) 190 261 244 129 306
Other non-current assets 524 459 81 649 72
Total Non Current Assets 5,763 6,066 6,784 7,840 9,425

Investments 3,116 4,071 4,661 4,914 4,500

Trade receivables 2,451 3,028 3,586 4,275 4,754
Cash and Cash equivalents 561 957 987 1,400 1,461
Other bank balances - - 526 39 48
Loans 346 410 11 9 10
Other current financial Assets - - 909 1,764 2,316
Current tax assets (net) - - 20 153 94
Other current assets 434 902 397 803 855
Total Current Assets 6,908 9,368 11,097 13,358 14,039

Total Assets 12,671 15,434 17,881 21,199 23,464

Equity share capital 400 400 800 800 800

Other equity 9,783 11,823 13,901 15,778 18,193
Total Equity 10,183 12,223 14,701 16,578 18,993

Borrowings 14 32 26 27 22
Deferred payment liabilities 559 301 - - 20
Provisions 80 93 116 124 146
Deferred tax liabilities (net) - 1 3 - 111
Total Non Current Liabilities 653 426 145 151 298

Trade Payables 319 434 497 1,599 1,209

Deferred Payment Liabilities - - - 4 1
Other Financial liabilities - - 535 535 453
Other Current Liabilities 468 1,140 730 1,108 1,119
Provisions 1,048 1,211 1,274 1,224 1,391
Total Current Liabilities 1,835 2,785 3,036 4,469 4,173

Total Liabilities and Shareholders Equity 12,671 15,434 17,881 21,199 23,464

Checksum (ASSETS = LIABILITY + EQUITY) - - - - -

Balance Sheet Ratios

DSO
Payable Days
Mar/18 Mar/19 Mar/20 Mar/21 Mar/22 Mar/23 Mar/24
2018 - A 2019 - E 2020 - E 2021 - E 2022 - E 2023 - E 2024 - E
2,581
8
77
2,464
45
2,881
143
37
642
92
8,969

5,916
4,847
1,344
1,070
7
2,758
114
1,563
17,620

26,589

800
20,472
21,272

17
-
160
270
447

1,673
-
396
1,201
 1,599
4,870

26,589

-
Persistent Systems
Revenue Driver - Price * Quantity Method
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)
Date Mar-13 Mar-14 Mar-15
Year 2013 - A 2014 - A 2015 - A
Revenue from Operations in INR Mn 12,945 16,692 18,913
Revenue By Delivery Centers
Global development Centers 18.2% 20.9% 24.8%
India 64.6% 61.1% 56.1%
IP Led 17.2% 18.0% 19.1%

Global development Centers

India
IP Led

Billed Person Months

GDC 3,294 3,980 5,113
India 37,882 40,053 40,981
IP Led 8,974 9,148 10,207

Average Revenue per Person Months

GDC
India
IP Led

Billable Person Months

GDC 3,718 4,585 5,754
India 51,823 57,506 58,493
IP Led 8,974 9,148 10,207

Utilisation rate
GDC
India
IP Led

Number of billable employees

GDC
India
IP Led

Addition in number of billable employees

GDC
India
IP Led
Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23
2016 - A 2017 - A 2018 - A 2019 - E 2020 - E 2021 - E 2022 - E 2023 - E
23,123 28,784 30,337

28.0% 26.8% 32.0%

50.9% 45.2% 42.4%
21.1% 28.0% 25.6%

6,623 7,280 9,255

42,327 45,346 47,151
13,509 19,978 19,982

7,682 8,515 10,609

57,871 60,245 60,597
13,509 19,978 19,982
Mar-24
2024 - E
Persistent Systems
Cost Drivers
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)
Date Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
Year 2013 - A 2014 - A 2015 - A 2016 - A 2017 - A
Revenue from Operations 12,945 16,692 18,913 23,123 28,784

Employee Details
Technical 6,540 7,349 7,861 8,618 8,808
Sales & BD 99 150 224 201 193
Others 331 358 421 445 459

Employee Benefit expense 7,188 9,090 11,114 14,068 18,008

Cost of technical professionals 536 906 1,090 1,587 1,818
Other Expenses 2,094 2,553 2,806 3,554 4,304
Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
2018 - A 2019 - E 2020 - E 2021 - E 2022 - E 2023 - E 2024 - E
30,337 27,516 31,757 36,702 42,267 47,607 51,972

8,329
211
436

18,316
3,181
4,153
Persistent Systems
Asset Schedule
(All numbers in INR Million, Except per share data)
(Red for assumptions, Blue for Acutal data and Black for Calculations)
Date Mar-13 Mar-14 Mar-15 Mar-16
Year 2013 - A 2014 - A 2015 - A 2016 - A
Property, Plant and Equipment
Other Intangible Assets
Total Fixed Assets

Depreciation & Amortisation

Depreciation & Amortisation Rate %

Purchase of Fixed Assets

Purchase of Fixed Assets as % Revenue from Operations
Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
2017 - A 2018 - A 2019 - E 2020 - E 2021 - E 2022 - E 2023 - E 2024 - E