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Growth accelerates owing to large deals Margin recovery and TCV growth remain the key monitorables

* Persistent Systems (PSYS) reported a 2QFY27 revenue of USD488m (vs. est. USD475m), up 7.8% QoQ in USD terms and 7.8% in CC terms (est. +5%). EBIT margin stood at 15% (vs. our est. of 15.6%).

* EBIT grew 1.6%/19.5% QoQ/YoY to INR6.9b. Adj. PAT came in at INR4.9b (vs. our est. of INR5.7b), up 2.2%/4.7% QoQ/YoY. This excludes the Nagarro acquisition-related expenses of INR1.9b (post-tax INR1.4b).

* For 1HFY27, revenue/adj. EBIT/adj. PAT grew 29.7%/25.7%/9.0% YoY in INR terms. We expect revenue/adj. EBIT/adj. PAT to grow 26.5%/25.1%/24.8% YoY in 2HFY27. TCV stood at USD634m, down 44.7% QoQ/ up 4.4% YoY (1.3x book-to-bill). We value PSYS at 35x FY28E EPS. We reiterate our BUY rating on the stock with a TP of INR6,700.

Our view: Healthy growth; we await clarity on the Nagarro synergies

* PSYS’s revenue grew 7.8% QoQ in CC terms, ahead of our estimates, supported by the ramp-up of the large technology deal, of which over 75– 80% had been ramped by 2QFY27. Growth was led by Software, Hi-Tech & Emerging (+13.3% QoQ) and BFSI (+6.8% QoQ). We model 19.8% organic YoY CC growth for FY27 after a healthy 1H performance.

* Margin recovery remains gradual: EBIT margin contracted 100bp QoQ to 15%, below our estimate, as wage hikes (140bp net impact), lower utilization (20bp) and third-party software licenses (~90bp) offset benefits from lower engineering expenses and favorable currency (~150bp). While management retained its aspiration of returning to the 16–17% margin band, recovery will depend on deal-related cost optimization and revenue scaling. We build in 15.9% margin for FY27 at the bottom of the aspirational band.

* Nagarro acquisition remains a key monitorable: PSYS secured 94.04% of Nagarro’s share capital, with closure likely in 4QCY26/1QCY27, subject to regulatory approvals. The proposed funding comprises USD450m of equity and ~USD800m of debt, with an expected debt cost of 5-6%. The synergies have not been quantified. Growth and margin benefits, integration costs and incremental interest expenses will be the key monitorables.

* Bookings reflect slower decision-making: 2QFY27 TCV stood at USD634m, up ~4% YoY as the management cited slower client decision-making and macro uncertainty, with some deals pushed into 3Q.

* Client-specific issues and growth outlook: Europe revenue declined 10% QoQ due to ramp-downs at two clients, while Healthcare & Life Sciences (flat QoQ) is expected to grow as issues at two clients are largely behind the business. While growth across segments should remain healthy, supported by the pipeline and large-deal ramp-ups, macro uncertainty and geopolitical developments could delay conversion.

Valuation and view

* We now model ~19% USD revenue CAGR over FY26-28E for PSYS, reflecting growth acceleration driven by the ramp-up of large deals. We are not factoring in margin expansion in FY27 over FY26, as additional hiring leading to lower utilization, transition costs related to large deals, and AI investments/tool purchases are expected to keep margins under pressure.

* We cut our EPS estimates for FY27 by 2.5% to factor in the INR1,853m Nagarrorelated acquisition expenses, which had ~3.1% impact on PAT in 2Q. We value PSYS at 35x FY28E EPS. We reiterate our BUY rating with a revised TP of INR6,700.

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