PERSISTENT SYSTEMS
| BSE ticker code |
533179 |
| NSE ticker code |
PERSISTENT |
| Major activity |
IT Consulting & Software |
| Managing Director |
Anand Deshpande |
| Equity capital |
Rs. 76.43 crore; FV Re. 10 |
| 52 week high/low |
Rs. 4987 / Rs. 1597 |
| CMP |
Rs. 3858.30 |
| Market Capitalisation |
Rs. 29487.06 crore |
| Recommendation |
Accumulate at declines |
Knocking at door of big league
In a century which has excelled in the space of Information Technology, with
world-renowned giant companies like
TCS, Infosys, Wipro, HCL Technology and Tech Mahindra
ruling the roost, Pune-headquartered Persistent Systems, a
small cap company, is fast climbing the corporate ladder
with efficiency and innovativeness to enable greater efficiency and resilience for
clients’ products and platforms.
During the last three decades, it has
emerged as a trusted digital engineering and enterprise modernization
partner, combining deep technical
expertise and industry experience, to
help its clients anticipate what’s next
and answer questions before they are
asked. It designs, develops and maintains software systems and solutions,
creates new applications and enhances the functionality of existing
software products. During the last
three decades, the company has gone
from strength to strength to notch up consolidated sales of
Rs 5,000 crore. Its prospects ahead are all the more promising.
Consider:
-
The company has been steadily growing through
both organic and inorganic routes. A couple of years after it
acquired Goa-based Control Net (India) Pvt Ltd, it signed an
asset purchase and sale agreement with Metrikus (India) Pvt
Ltd, Hyderabad. At the same time, it opened a branch office
in Rotterdam in The Netherlands. In 2014, it acquired Silicon Valley-based
Cloud Squads Inc and in 2015 it acquired
the assets of the Aepona IoT platform from Intel, focused by
acquisition of the cloud platform assets from Citrix. These
acquisitions also enabled Persistent to acquire development
centres in Belfast and Colombo and proved crucial for digital
transformation. In 2018, the company completed the acquisition of PARX – a
platinum sales force consulting company
based in Switzerland and Germany. In May 2021, Persistent
acquired the assets of Sureline Systems Inc and its subsidiary
Sureline Systems. And this year it has acquired Data Glove and has launched a
new Microsoft business unit with focus
on Azure cloud. All these acquisitions have made Persistent a
formidable IT company, all set to scale new heights.
-
Deepening expertise in various verticals and widening its presence globally
have helped Persistent win healthy
deals. During Q4FY21 (January to March 2021), the
company’s deal win total contract value (TCV) was $ 246.5
million (vs $ 302 million in Q3 FY21).
The management is confident of generating a new quarterly average deal
win TCV of $ 200-250 million. During the last five years, its revenues
have steadily grown from Rs 1,733
crore in fiscal 2017 to Rs 2,480 crore
in fiscal 2021, with the profit at net
level advancing from Rs 294 crore to
Rs 505 crore during this period.
Persistent’s financial position has become stronger, with reserves at the end
of March 2021 standing at Rs 2,222
crore – almost 28 times its equity capital of Rs 80 crore. The
company had made a bonus issue in the ratio of 1:1 in 2015
and shareholders can expect a fresh bonus issue in the next
few years. This cash-rich company has a sizeable cash balance of Rs 1,760 crore
and is literally debt-free. The interest
burden for fiscal 2021 was a fractional Rs 3.82 crore against
its turnover of Rs 2,480 crore.
-
Persistent’s business is growing on all fronts – vertical-wise as well as
geography-wise. In terms of geographies,
the growth was aided by the North American market which
reported a 9.8 per cent qoq growth while the India market
reported a 13.4 per cent qoq growth. In terms of verticals,
growth was aided by BFSI which grew by 14.6 qoq, while
technology grew 7 per cent qoq. With a sustained pace of
growth, the management is hopeful that by fiscal 2024-25,
the company will hit the $ 1 billion revenue target.
The company’s stocks, which were issued at a price of
Rs 300 in 2010, were quoted around Rs 550 a year ago. But
during the last one year the price has shot
up to Rs 3,858. We strongly feel that this
is a good buy even at the current price,
though it would be highly advisable to accumulate these shares at every decline. We
visualize its price to cross the Rs 5,000
mark in the very near future.
PERFORMANCE INDICATORS (Rs. in crore)
|
Year
|
Net Sales
|
Net Profit
|
EPS (Rs.)
|
Div (%)
|
BV (%)
|
RONW (%)
|
|
2018-19
|
3365.90
|
324.90
|
42.20
|
110.0
|
299.60
|
14.50
|
|
2019-20
|
3565.80
|
328.30
|
43.00
|
120.0
|
312.20
|
13.90
|
|
2020-21
|
4187.89
|
415.22
|
54.30
|
200.0
|
404.80
|
16.03
|
BERGER PAINTS
| BSE ticker code |
509480 |
| NSE ticker code |
BERGEPAINT |
| Major activity |
Paints |
| Chairman |
Kuldip Singh Dhingra |
| Equity capital |
Rs. 97.13 crore; FV Rs. 02 |
| 52 week high/low |
Rs. 872 / Rs. 675 |
| CMP |
Rs. 737.55 |
| Market Capitalisation |
Rs. 71639.96 crore |
| Recommendation |
Buy at declines |
Painting a solid marketshare
Kolkata-headquartered Berger Paints India is the second largest manufacturer of paints
in India after Asian Paints,
enjoying a marketshare of around 18 per cent. The company
has 20 manufacturing factories spread over West Bengal, Uttar
Pradesh, Puducherry, Goa and Jammu & Kashmir in India,
and abroad in Nepal and Poland. It has
a technical licence agreement with
Dupont Performance in the area of automobile coating, with Nippon Paints
for new-generation automotive coating, with Orica Australia Pty for protective coating
and with Tigerwerk
Lacku Farbaen Fabric GmbH, Australia for specialised powder coating.
Berger has a joint venture with Nippon
Bee Chemical for manufacturing of
coatings for plastic substrates used in
automobiles and mobile phones. Prospects for the company are highly encouraging.
Consider:
-
Almost 80 per cent of the company’s revenues comes
from decorative paints (the balance 20 per cent being contributed by industrial
paints). Despite aggressive expansion by the
industry leader and mounting competition by other players, the
company has succeeded in protecting its marketshare. During
the last five years, it has invested heavily in capex, brand building
(average 5 per cent of sales) and product innovation with a
strong balance sheet position. All these have resulted in a sharp
expansion in the EBITDA margin by 300 bps in the past 5
years and have generated an average RoE and RoCE of 22 per
cent and 32 per cent respectively.
-
Of course, during the lockdowns on account of the
Covid-19 pandemic, the company’s net profit marginally declined from Rs 609
crore in fiscal 2020 to Rs 681 crore in the
next fiscal, although the sales turnover registered a modest
increase from Rs 5,692 crore to Rs 6,021 crore in the same
period. The management expects strong demand recovery
from fiscal 2022 onwards and the trends so far this year support these
expectations. Market observers also believe that
with a strong supply chain and distribution network in place, Berger is all set
to benefit from a spike in demand once the
situation normalizes post the pandemic.
-
Going ahead, demand for paints is bound to shoot
up on account of growing urbanization, rising incomes, improving standard of
life and a spurt in real estate activity.
Berger has posted a topline CAGR
growth of 10 per cent in the last 20
years and expects the market for repainting to grow at a rate of 15 per
cent for the near future. According
to the management, almost 80 per
cent of demand comes from repainting and thus the current pace
of growth of the company is most
likely to continue.
-
A plus point for Berger
is its focus on innovation. During the
last few years, the company has introduced some innovative, higher-margin
products which are
contributing 10 per cent to sales, and the management wants
to build on this strategy. The company is focusing not just on
innovation but on better formulations, cost control and change
in the product mix to improve the gross margin going forward
-
The company is not afraid of the growing competition
on account of new entrants. The Berger management believes
that the hub-and-spoke model may not work for the paint industry because it
will lead to a longer waiting time for the customer.
-
Thanks to its innovative approach, the company
launched ‘Well Shield 2K, which is an acrylic polymer white
cement-based waterproofing. Home shield an acrylic polymer modified white
cement based waterproofing coating. This
has superior water resistance and weathering properites. The
company has also launched Easy Clean Fresh – an emulsion
which has over absorbing high strain resistance and
cleanability properties. The company has also come out with
Home Shield PU roof coat, which is high performance water
proofing membrane. These new prospects are expected to give
a boost to the company’s top as well as bottom line going
ahead.
Stocks of the company
are quoted about Rs. 725.
Discerning investors will do
well to accumulate these
shares with a long-term
perspective.
CONSOLIDATED PERFORMANCE INDICATORS (Rs. in crore)
|
Year
|
Net Sales
|
Net Profit
|
EPS (Rs.)
|
Div (%)
|
BV (%)
|
RONW (%)
|
|
2018-19
|
6061.90
|
490.00
|
5.00
|
190.0
|
26.30
|
21.00
|
|
2019-20
|
6365.80
|
645.70
|
6.60
|
220.0
|
27.40
|
25.30
|
|
2020-21
|
6817.59
|
714.81
|
7.40
|
280.0
|
35.60
|
23.68
|
MANALI PETRO CHEMICALS
| BSE ticker code |
500268 |
| NSE ticker code |
MANALIPET |
| Major activity |
Petrochemicals |
| Managing Director |
Ashwin C. Muthiah |
| Equity capital |
Rs. 86.04 crore; FV Rs. 05 |
| 52 week high/low |
Rs. 139 / Rs. 46 |
| CMP |
Rs. 100.25 |
| Market Capitalisation |
Rs. 1724.29 crore |
| Recommendation |
Buy at declines |
Riding propylene glycol demand
Almost four decades old, Chennai-headquartered
Manali Petro is a leading petrochemical company engaged
in marketing propylene glycol and polyols. Annually it produces 27,000 mt of propylene
oxide, 14,000 mt of propylene glycol and 15,000 mt of polyether polyol. These products
find applications in a variety
of industries, including appliances,
automotive beddings, food and fragrances, furniture, footwear paints
and coatings. As these industries
are doing well and have very good
prospects ahead, the outlook for
Manali is quite promising.
Consider:
-
The company’s plant 1 –
originally built by SPIC and set up
with the technology of Afochem
glycol and that of Arco for the
manufacture of polyol, was acquired through Technip of
France. Manali’s plant 2 – originally a joint venture of UB
and TIDCO, merged with Manali later, utilizes the technology of Enichem of
Italy for PO and PG and press industrial for maintenance of polyol. Manali
markets its polyols
with isocyanates sourced indigenously as well as imported
from Japan and China. and pre-polymers produced at
Manali, in meeting the demand of the polyurethane industry in India.
-
During the second half of fiscal 2021, Manali entered into a tie-up with
UK-based Econic Technologies
for introducing more environmental-friendly Co2 containing polyols into the $
28 billion global polyols market. It
plans to scale up its catalyst technology which would enable the substitution
of fossil-based raw materials with
captured waste Co2 in the production of polyols. This
green initiative will improve the ESG score of Manali Petrochemicals.
-
The company is steadily growing on the financial
front. During the last five years, its sales turnover has expanded every year –
from Rs 577 crore in fiscal 2017 to Rs
922 crore in fiscal 2021, with the profit at net level shooting up from Rs
40.42 crore to Rs 192.50 crore during this
period. The company’s financial
position is very strong, with reserves at the end of March 2021
standing at Rs 551 crore – more
than six times its equity capital of
Rs 86 crore. The company enjoys
a good cash flow and the interest
burden is nominal at around Rs
4.42 crore – less than even a fractional 0.50 per cent of its sales turnover
of Rs 922 crore in fiscal 2021.
Thus, it is virtually a debt-free corporate entity
-
In view of the rising demand for its products, the
company has chalked out an expansion plan to raise its manufacturing capacity
of propylene glycol (PG) from the existing
22,000 tpa to 70,000 tpa at an estimated cost of Rs 450 crore.
The expansion plan will be implemented in two phases. During phase I, a
capacity of 24,000 tpa will be added at a cost
of around Rs 60 crore, met through internal accruals. This
phase will be completed within 18-21 months. Phase II to expand capacity by
another 24,000 tpa will be completed within
the next 15 months.
-
This capacity expansion will give a boost to the
company’s topline as well as bottomline. Today, Manali is the
only manufacturer of PG in India which is widely used in
pharmaceuticals, foods and flavours and also in industrial
applications. The current demand of PG in India is around
1,00,000 tpa, which is growing at a rate of 5 per cent every
year. The country has to meet the shortfall through imports.
Manali’s capacity expansion will go a long way in reducing
the dependence on imports and saving valuable foreign exchange.
The company’s shares are quoted
around Rs 100 per piece of a face value of
Rs 5. Discerning investors can reap rich
benefits with a long-term perspective.
PERFORMANCE INDICATORS (Rs. in crore)
|
Year
|
Net Series
|
Net Profit
|
EPS (Rs.)
|
Div (%)
|
BV (%)
|
RONW (%)
|
|
2018-19
|
702.10
|
55.40
|
3.20
|
15.0
|
25.60
|
13.40
|
|
2019-20
|
803.10
|
53.50
|
3.10
|
15.0
|
28.00
|
11.40
|
|
2020-21
|
1019.52
|
217.34
|
12.60
|
30.0
|
50.90
|
37.43
|
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