Persistent Systems bulls expect market cap to double in four years, bears see 27% downside

Shares of Persistent Systems Ltd. are in focus on Friday, October 17, after the company's second quarter results beat revenue estimates but were a miss on margins. Its profit after tax (PAT) was hit by the Nagarro M&A deal impact.

Meanwhile, brokerages were largely positive on the stock post its quarterly earnings report. Analysts bullish on the stock expect the stock to test levels of ₹6,770, while the ones who are bearish on the stock, expect the stock to fall as much as 27% from current levels.

How Did Persistent Systems Fare In Q2?

Persistent Systems' constant currency (CC) revenue growth was at 7.8%, higher than estimates of 7%.

Its earnings before interest taxes (EBIT) margins declined by 100 basis points to 15% from 16% sequentially and were below estimates of 15.5% as well. The margin headwinds include wage hikes, lower utilisation and amortisation from a large deal, partially offset by tailwinds from lower selling, general and administrative expenses (SG&A) and favourable currency movements.

Persistent Systems' aspirational EBIT margin target is 16% to 17%.

Its PAT declined 27% sequentially to ₹351.5 crore from ₹483 crore. This was impacted by the ₹185.34 crore one-off expense from the Nagarro deal.

Its revenue in dollar terms was at $487.6 million compared to $452.4 million in the previous quarter and $406.2 million in the year-ago period.

Persistent Systems' deal wins are in-line with its long-term average. Its total contract value (TCV) stood at $367 million, down 61% sequentially and up 5% from last year. The first quarter witnessed a large $650 million deal win, which is why the numbers looked weak on a sequential basis.

The company witnessed strong growth among its top clients. Its top five clients were up 24% sequentially, top 10 were up 17%, top 20 and top 50 were up 14% and 10%, respectively.

Within verticals, Hi-tech grew the strongest at 13% from the previous quarter, BFSI was up 6.8%, while healthcare was flat.

Meanwhile, under geographies, North America witnessed an 11% increase sequentially, while Europe de-grew by 10% and India grew by 1%. The rest of the world category declined 5% from the prior quarter.

JPMorgan Among The Ones Bullish On Persistent

The global investment banking firm has an "overweight" rating on Persistent Systems with a target price of ₹6,400 apiece, indicating an upside of 9.6% from its previous close.

It said the second quarter revenue grow 7,8% sequentially, led by large tech deal ramp up and also winning an in-vendor consolidation exercise at a large BFS client. Overall, the deal TCV was soft at 4% from last year, but it highlighted that some deal closures slipped to the third quarter due to delays in client decision making in the last few weeks of the quarter, stemming from macro-related uncertainty.

JPMorgan said it is confident of broad-based growth going forward on the back of deal wins and a healthy pipeline.

It said Persistent Systems' EBITDA margin was flat and came in line, but EBIT margin declined by 100 basis points sequentially to 15% due to higher amortization costs from a large tech deal.

JPMorgan said products takeover is likely to continue going forward, leading it to cut margin estimates by 40 to 60 basis points driving a 2% - 4% cut to the adjusted earnings per share (EPS) estimates.

CLSA Retains Its High-Conviction

CLSA has a "high conviction outperform" rating on Persistent Systems with a target price of ₹6,488 apiece, indicating an upside of 11.09% from its previous close.

It said the second quarter was mixed, with revenue 2% ahead of the consensus but EBIT / adjusted PAT was 2% and 12% below consensus.

The primary driver for the miss was an elevated level of interest expense and higher forex losses. As a result, CLSA has lowered its FY27-29 EPS forecasts by 6% - 9%. However, it still forecasts the company's revenue / EBIT / EPS to grow at a compound annual growth rates (CAGR) of 16%, 19% and 22%, respectively over financial year 2027-2029.

CLSA said it has not incorporated Nagarro in its estimates but believes that post-integration, it could fetch the company $5 billion in revenue by financial year 2031.

Assuming a 3x enterprise value / sales multiple, CLSA believes that the additional debt raised, will be paid fully via internal accruals and additional free cash flow generation will take care of equity dilution. The firm went on to add that the company's market cap could potentially double over the next four years.

Nomura Sees Modest Downside From Current Levels

Nomura has a "neutral" rating and a target price of ₹5,600 per share, indicating a downside of 4% from its previous close.

It said the company's margins are likely to be hit in this fiscal by large deal execution. The Nagarro acquisition is expected to close in the next one to two quarters, as per the management.

Nomura has lowered its FY27 EPS estimates by 22% but raised its FY28 EPS estimates by 3%.

Which Analysts Are Bearish On Persistent Systems?

Among those analysts who are bearish on Persistent Systems, Investec, Citi and Avendus Spark have "sell" ratings on the stock and see price targets that range from ₹4,270 to ₹4,560, indicating a downside potential of up to 27% from current levels.

Stock reaction

Of the 42 analysts who have coverage on the stock, 22 have "buy" recommendations while 10 have "hold" and "sell" ratings each.

Shares of Persistent Systems declined 1% in the previous session to close at ₹5,840 per share. The stock has gained 7.4% in the past month but is also down 7% in 2026, so far.

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