Buy Persistent Systems Ltd For Target Rs. 6,350 by Choice Institutional Equities Ltd
Core Execution Remains Strong; Nagarro adds Strategic Scale with Execution Risks:
PSYS delivered another strong quarter, underpinned by record TCV of USD 1.15 Bn, continued market share gains and sustained traction in AIled outsourcing, reinforcing confidence in its medium-term organic growth outlook. We view the EUR-1.27 Bn Nagarro acquisition as strategically compelling, materially strengthening PSYS’s European presence, vertical diversification (Manufacturing, Retail and Public Services) and enterprise application capabilities. While Nagarro’s relatively lower growth and margin profile and integration execution remain key monitorables, we believe the deal’s strategic benefits enhanced scale and stronger long-term growth profile outweigh these headwinds. Accordingly, we upgrade the stock to ‘BUY’ and raise our TP to INR 6,350, valuing PSYS at 35x FY28E EPS
Revenue Momentum Remains Strong; Record Deal Wins Enhance Growth Visibility:
PSYS reported another strong quarter with revenue of USD 452.4 Mn, growing 3.8% QoQ and 16.1% YoY, supported by broad-based execution across key verticals. Healthcare & Life Sciences (+16.4% YoY), BFSI (+16.3% YoY) and Software, Hi-Tech & Emerging Industries (+15.7% YoY) continued to drive growth, while North America remained resilient with 15.1% YoY growth. The company reported its highest-ever quarterly TCV of USD 1.146 Bn, including USD 952 Mn of new bookings and USD 537 Mn ACV, underpinned by a USD 650 Mn+ strategic outsourcing engagement with a global technology leader. The management highlighted continued market share gains through vendor consolidation and competitive outsourcing wins, reinforcing confidence in sustained above-industry growth. We expect healthy deal ramp-ups, expanding AI-led outsourcing opportunities and continued client consolidation to support strong revenue momentum through FY27E.
Margin Soft; Nagarro Integration a Near-term Monitorable:
EBIT margin moderated to 16.0% (-30 bps QoQ) due to proactive hiring, lower utilisation (86.5%, -150 bps QoQ) and continued AI capability investments. The management expects the 180–200 bps wage hike impact in Q2FY27, which would be partly offset through productivity initiatives and reiterated its 16–17% medium-term EBIT margin aspiration. While AI-led operating leverage and largedeal ramp-ups anticipated to support gradual margin recovery, the proposed Nagarro acquisition is likely to dilute near-term margin and introduce execution and integration risks. We expect profitability to improve progressively as utilisation normalises, large deals scale up and acquisition synergies begin to materialise.
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