Case Study 1: Persistent Systems

The journey from 10 lakh in 1990-91 to 1 cr in 1995-96 to 10 cr in 1999-2000 to 100 cr in 2004-2005 to 1000 cr in 2011-12 to 12000 cr in 2024-25 (projected) was not so smooth.

Rabi

Apr 23, 2025

Revenue

FY2011 - 776 cr

FY2024 - 9821 cr

FY1991 - 10 lakh

Revenue CAGR from FY11 to FY24 is 22% approx and from FY1990 to FY24 is 39% approx

Net Profit

FY11 - 140 cr

FY24 - 1093 cr

CAGR - 17.12%

Dividend

FY11 - ₹5.50

FY24 - 26 (split adjusted)

Employee count

1990 - 1

FY11 - 6000

FY24 - more than 23800

FCF has been positive since 2013 except for 2022. Share price CAGR since IPO 35% approx.

Seems like a Dreamy Business termed by Jeff Bezos in his shareholder letter, right? It's like a dream for any investor to have such a company in their portfolio. But the journey from 10 lakh in 1990-91 to 1 cr in 1995-96 to 10 cr in 1999-2000 to 100 cr in 2004-2005 to 1000 cr in 2011-12 to 12000 cr in 2024-25 (projected) was not so smooth.

There were scams, dot com bust, global financial crisis, demonetisation, GST introduction, high inflation, pandemic, economic slowdown, Russia-Ukrain war and so many things. Yet, Persistent persisted.

The company was founded in 1990 by two brothers - Dr. Anand Deshpande amd Mr. S. P. Deshpande. Dr. Anand, a PHD holder, was working at Hewlett-Packard in the USA. And Mr. S. P. Deshpande was working at Kirloskar Pneumatic in Pune as vice president at that time. The IT industry was just taking off.

Persistent has been at the forefront of innovation since inception. They were always ahead in their game. Even before businesses implementing cloud computing, they were working on it along with analytics, collaboration and mobility. At the time of their IPO, it was subscribed by 93.58 times. Hope you realize the craze about the company at that time.

As per my calculation, the market cap was 1240 cr at the time of IPO (Issue price - ₹310 and shares outstanding - 4 cr).

Revenue was 776 cr. PE would be around 8-10. Quite cheaper than what it is today. Independent directors were holding some shares of the company whereas promoter holding at 39% and institutional holding was around 31%. It was already a global player. I'm just giving you some context of where the company was at the time of IPO to understand how it evolved over the years.

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Most of the revenue was coming from overseas as same as it is today. At the time of its IPO, some numbers would be justified here to add.

Revenue growth since FY06 - 24% CAGR

Net profit growth - 24% CAGR

ROCE - above 17% (min) and 20% (avg)

Operating profit - above 16% (min) and 24% (avg)

Book value growth - 18% CAGR

Even the whole world was grappling with economic slowdown, Persistent was constantly growing. They were growing well until 2015. Then they slowed down. Net profit slowed down heavily. And since 2015, the stock didn't go anywhere until 2020. After pandemic, the stock just exploded supported by the tailwinds in the industry. The company was available at less than 2x revenue multiple (current year earning) and price/book was also less than 2. They were constantly growing. There was a management change later in 2020. This time Sandeep Kalra became the CEO just after Christopher O'Connor's resignation who became the CEO of the company in 2018.

Apart from numbers, the company was fully focused on innovation, geographical expansion, partnerships, acquisition etc. They were so focused on innovation that they created a separate subsidiary named Accelerite to boost their R & D. It was based on Silicon Valley so they had on-ground experience with what was happening in the technology world.

Time to time, they changed their business model. In 2014, revenue contribution was as follows -

Traditional product development - 60%+ Platform Solutions - 20% +

IP-led business - 20%

That changed into -

Software, Hi-tech and emerging industries - 40.5% + Banking, financial services and Insurance - 31.7% + Healthcare & Life sciences - 27.8% in FY2025.

Milestone of 10000 cr revenue which was set in FY2012 is on track to be achieved in FY2025. Currently, Persistent is an AI-led, platform driven digital engineering and enterprise modernization partner providing services to global corporates. They were recently rated 12 of 30 most innovative global companies by BCG. Still, most of the revenue comes from America. 20+ patents have been filed related to SASVA, an AI powered software development platform. Because they are always ahead in their game, it seems like they are preparing for the future. Management is fully focused on achieving $2bn revenue by FY27 and $5bn by FY31. Looks aggressive but Persistent seems on track to achieve such milestones.

Making a business successful requires a lot of factors. Apart from numbers, the management was deeply knowledgeable in their field, focused, agile, visionary and of course, hungry. In hindsight, we can easily say it was a great company but nobody really knew the company would deliver 50x returns over the next 14 years. One thing, we as investors can do in such a situation is to take a good position and then increase it over the years as it delivers good results. Companies like Persistent are made once in a generation that truly can change someone's fortune. Until it does something wrong, they have a long runway.

Thanks for reading

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