Valuing Indian Software companies
Indian Software companies are getting segregated into two types: The Services Ones (Largecap ones: TCS/Wipro/Infosys/HCL and mid-cap ones like MindTree, TechMahindra) and ones which have non-liner growth. The typical non-linear growth ones have started getting more than one-fourth of their revenue from non-services revenue. Examples: Accelya Kale, Majesco, Persistent Systems.
Interestingly these can be further classified into Subscription revenue driven ones and lumpy transformational engagement driven ones. I would put Accelya Kale into the subscription revenue camp. It is able to do this kind of subscription revenue without incurring the typical cost of a SaaS Subscription business (an example of this would be Salesforce or WorkDay) due to the vertical it operates in (Finance Ops of Airline Companies). And maybe this explains the string dividend payout done by the company. Persistent Systems would be in the other bucket.
I wonder how to use the typical metrics of P/E and EV/Sales for evaluating these companies. What values of P/E would one comfortably ascribe to these types of companies to make them attractive to buy. Of course this is assuming one wants to be invested in such opportunities :)
