Persistent Systems Shares Fall 4% as Q2 Profit Drops 25.4%

Persistent Systems shares came under pressure on Friday after the IT services company reported its September-quarter results after market hours on October 15. The stock fell nearly 4 per cent in early trade and later extended the decline to around 6 per cent, touching an Intraday low of Rs 5,492 compared with the previous close of Rs 5,840. The selling came despite strong revenue growth, as investors focused on the sharp fall in reported profit and weaker margins. 

The headline numbers showed a mixed quarter. Persistent Systems continued to deliver strong growth on the revenue front, but acquisition-related costs and higher expenses weighed on the bottom line.

Revenue Growth Remains Strong

Persistent Systems reported consolidated revenue of Rs 4,663.9 crore in Q2 FY27, rising 30.3 per cent year-on-year from Rs 3,580.7 crore. On a sequential basis, revenue increased 8.4 per cent.

In dollar terms, revenue stood at USD 487.6 million, up 20 per cent year-on-year and 7.8 per cent quarter-on-quarter. The company said this marked its 26th consecutive quarter of sequential revenue growth.

The constant-currency revenue growth was 20.8 per cent year-on-year, showing that the underlying business continued to expand at a healthy pace. 

Profit Falls Due to Nagarro-Related Expense

Persistent Systems' consolidated profit after Tax fell 25.4 per cent year-on-year to Rs 351.5 crore from Rs 471.5 crore in Q2 FY26. On a sequential basis, PAT declined 27.2 per cent from Rs 483 crore in Q1 FY27.

A major reason behind the decline was an exceptional expense of Rs 185.34 crore related to the proposed acquisition of Nagarro. After excluding exceptional expenses, operating PAT stood at Rs 495.15 crore, which was actually 5 per cent higher year-on-year.

This distinction is important. The reported profit took a significant hit, but the underlying operating profit performance was considerably better than the headline PAT number suggests.

Margins Come Under Pressure

Persistent Systems reported EBIT of Rs 697.7 crore, up 19.5 per cent year-on-year. However, the EBIT margin stood at 15 per cent, compared with a higher margin in the previous quarter.

The company also reported operating PAT of Rs 495.15 crore, with a margin of 10.6 per cent. The pressure reflects the higher cost base during a quarter in which the company is progressing with its Nagarro acquisition. 

Analysts also pointed to higher amortisation, interest costs and foreign-exchange losses as factors affecting profitability. JPMorgan noted that higher amortisation costs associated with large technology deal-related product takeovers could continue to weigh on margins. 

Deal Wins Remain Healthy

The earnings report was not entirely negative. Persistent Systems continued to see strong demand, with total contract value (TCV) of $633.5 million and annual contract value (ACV) of $481 million during the quarter.

The company highlighted wins across software and hi-tech, Banking, financial services and insurance, as well as healthcare and life sciences. Several of the projects involved cloud modernisation, data and AI and enterprise transformation.

However, deal momentum was somewhat softer than the record level seen in the previous quarter, and some deal closures were pushed into Q3 amid delays in client decision-making, according to analyst commentary. 

Nagarro Acquisition Moves Closer

Persistent's proposed acquisition of Nagarro remains a key factor for investors.

The company said it had secured approximately 94.04 per cent of Nagarro's share capital and voting rights, excluding treasury shares. It has also received shareholder approval for an equity raise of up to USD 450 million, with combined equity and borrowings capped at USD 1.25 billion. 

The acquisition is expected to strengthen Persistent's engineering capabilities and expand its geographic and global delivery footprint. At the same time, the transaction is bringing near-term costs and additional financial considerations, which investors are now factoring into their expectations for earnings and margins.

Why Persistent Systems Shares Are Falling

A 30.3 per cent year-on-year increase in revenue is strong, but reported PAT declined 25.4 per cent. The one-time Nagarro-related expense explains a large part of the fall, while weaker margins and higher costs have added to concerns around near-term earnings.

Persistent Systems' management continues to point to strong demand, healthy deal wins and the long-term benefits of the Nagarro combination. For investors, however, the key question will be how quickly the additional costs associated with the acquisition are absorbed and whether the company can maintain its strong revenue growth while rebuilding margins.

Disclaimer: The article is for informational purposes only and not investment advice.