Persistent Systems shares: Why this stock fell 6% after Q2 results; target prices

Persistent Systems Ltd shares fell 6% in Friday's trade after the IT services company reported its September-quarter results, with revenue growth coming in below expectations and operating margins missing estimates.

While revenue grew 20.8% year-on-year (YoY) in constant-currency terms, the impact of a large software deal on margins and slower-than-expected deal momentum weighed on the results. Brokerages offered mixed assessments, with two maintaining 'Hold' ratings and BOB Capital Markets retaining its 'Sell' call.

The company reported revenue of $487.6 million in Q2FY27, up 7.8% quarter-on-quarter and 20.8% YoY in constant-currency terms. However, EBIT margin declined to 15%, missing estimates, while reported profit after tax fell 25.4% YoY to Rs 351.51 crore. Total contract value (TCV) stood at $633.5 million, up around 4% YoY but down about 45% sequentially.

At the day's low of Rs 5,490.30, Persistent Systems shares were down around 6% from their previous close of Rs 5,837.90. The stock opened at Rs 5,610 and touched a high of Rs 5,707.15 during the session.

What did the brokerages say?

Nirmal Bang Institutional Equities maintained its Hold rating on Persistent Systems with a target price of Rs 5,700. The brokerage said revenue growth remained strong but flagged the decline in EBIT margin to 15%, against its estimate of 16.3%. It also noted that the large software deal increased amortisation costs, while some deals were pushed into the December quarter.

ICICI Securities also maintained its Hold rating, with a target price of Rs 5,670. The brokerage highlighted the ramp-up of a large hi-tech deal and healthy growth in banking, financial services and insurance (BFSI), but noted pockets of weakness, including a decline in Europe's revenue and higher costs linked to the large deal.

BOB Capital Markets retained its Sell rating on Persistent Systems Ltd and set a target price of Rs 3,718, implying a downside of around 36% from the Rs 5,840 share price cited in its report. The brokerage flagged 'weaker-than-expected margins and deal momentum,' while raising concerns about execution risks associated with the Nagarro acquisition.

In its report, BOB Capital Markets said "growth, margin and TCV/ACV disappoint", citing an EBIT margin of 15%, below its estimate, and deals that slipped from the September quarter into the December quarter. It also expressed caution over the risks associated with the Nagarro acquisition.

What were the key Q2 numbers?

Persistent Systems' revenue stood at Rs 4,663.9 crore, up 8.4% quarter-on-quarter and 30.3% YoY in rupee terms. EBIT came in at Rs 697.7 crore, with the margin at 15%, down around 100 basis points sequentially. The company attributed margin pressure to annual wage hikes and higher amortisation costs associated with software tools and licences for a large deal, partly offset by lower selling, general and administrative expenses and favourable currency movements.

Reported PAT stood at Rs 351.51 crore, down 25.4% YoY, and included exceptional expenses of around Rs 185.34 crore related to the Nagarro acquisition. Adjusted PAT was Rs 495.1 crore, with an adjusted PAT margin of 10.6%. Total contract value was $633.5 million, while annual contract value stood at $481 million.