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Higher forex loss dents profitability

Persistent Systems (PSYS IN) Q 1 revenue was largely in line , but reported profitability was lower than our estimates , due to higher forex loss . The company witnessed strong growth in its India business , which is a result of services procurement by some clients through India Global Capability Centre (GCC ). Management insists this may be an aberration while the US and the EU remain growth drivers in the medium term. The company reiterated USD 2bn annualized revenue growth target in FY27 and also maintained its aspirational revenue target of USD 5bn by FY31 . Regarding the Nagarro acquisition, management says it has submi tted documents to regulatory bodies in Germany a s well as in India , and approval is awaited. Management expects acquisition closure by Q4CY26 -Q1CY27. The company announced a wage hike effective July 1 , 2026 , which may impact margins in Q2. Management mentioned that they will likely mitigate this headwind through cost optimization. Management maitained EBIT margin target of 16-17% in the medium term. We reiterate Sell with a lower TP of INR 4,100 on 26x FY28E P/E .

Hi-tech, India and RoW drive growth: PSYS reported revenue growth of 4.1% QoQ in CC terms and 3.8% in USD terms in Q1FY27. In INR terms, revenue grew 6.1% QoQ and 29.1% YoY. Geography -wise, growth was led by India and RoW, which grew 22.5% QoQ and 22.6% QoQ, respectively, followed by the EU at 8.9% QoQ, while North America grew by a mere 0.8% QoQ. Vertical -wise, growth was led by hi-tech, up 7.7% QoQ, followed by BFSI at 2.3% QoQ, while healthcare & life scien ces remain s broadly flat sequentially. Total contract value ( TCV ) reached an all -time high of USD 1,146.2mn, up 90.8% QoQ and 120.1% YoY (including USD 650mn deal) , while annul contract value (ACV ) stood at USD 536.8mn, up 20.6% QoQ and 39.3% YoY. LTM attrition declined 70bp QoQ to 12.3% while PSYS reported a net addition of 1,138 employees in Q1. Utilization declined 150bp QoQ to 86.5% .

Lower utilization leads to margin contraction: Q1FY27 reported EBIT margin declined 30bp QoQ to 16.0%, dragged by lower utilization , due to proactive hiring for the ramp -up of large deals ( -60bp) and higher direct cost, including increased AI -tool us e and software purchase cost, net of personnel -cost efficiencies ( -20bp). These headwinds were offset by favorable currency movement (+30bp) and lower provisions for doubtful debts (+20bp). PSYS rolled out wage hikes effective July 1, 2026, and expects to of fset the impact via higher operational efficienc y. Management reiterated EBIT margin range of 16 – 17% while continuing to prioritize growth and investments in AI -led delivery capabilities.

Retain Sell with a lower TP of INR 4,100: The company retained its USD 2bn annualized revenue growth target in FY27 and revenue of USD 5bn by FY31 , including inorganic opportunities. Our revenue growth of 15% in USD terms in FY27E and 13% in USD terms is FY28E are largely unchanged while our earnings are down by 4 -8% during FY27 -28E, due to weak profitability in Q1 . Accordingly , we cut our TP to INR 4,100 from INR 4,280 based on 26x FY28E P/E . Our numbers do not include Nagarro numbers. We retain Sell, given its expensive valuation ( the stock trad es at 43x FY27E P/E and 35x FY2 8E P/E ).

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