Persistent Systems Ltd’s revenue growth trajectory lostmomentum in the June quarter (Q1FY26) amid client-specific delays and subdued macroeconomic conditions.
Against a run rate of over 4% in the preceding four quarters, constant currency revenue for India’s ninth largest information technology services company grew 3.3% in Q1, missing analysts’ expectations.
While Persistent Systems’s banking, financial services and insurance (BFSI), software and hi-tech segments drove growth, healthcare and lifescience revenue declined sequentially. The healthcare segment faces headwinds due to the US’s tariff on China, which has been impacting medical equipment manufacturers and the global supply chain.
Healthcare, which has been a key growth driver for Persistent lately, is likely to rebound, the management said, adding that BFSI would continue to anchor growth and that the hi-tech segment is expected to remain stable.
Despite a soft Q1, Persistent eyes industry-leading growth in FY26.It also maintained its FY27 target of hitting $2 billion in revenue through a combination of organic and inorganic measures. This would translate to a compound annual growth rate of 19-20%.
Persistent closed FY25 with revenue of $1.4 billion. It’s aiming for a 200-300 basis point (bps) margin expansion on earnings before interest and tax (Ebit) from the FY24 level of 14.4%.
The company’sfocus is on profitable growth and not on meeting revenue targets at any cost, the management said. But a weak demand environment could bring challenges. Persistent’s pace of revenue growth in FY26 and beyond is contingent on conversions of deal wins, where a pick-up is crucial to build confidence on growth outlook.
In Q1FY26,total contract value rose 0.6% sequentially and 12.5% year-on-year to $520.8 million, while annual contract value (ACV) grew 10% sequentially and 14.2% year-on-year to $385.3 million. The ACV represents the annualized value of new bookings. The book-to-bill of 1.34x slid to an eight-quarter low.
“Growth in overall TCV and ACV numbers has been trending below revenue growth for quite a few quarters and will eventually lead to revenue growth deceleration,” Kotak Institutional Equities said in a report dated 24 July.
No room for disappointment
Persistent needs to win enough cost take-out deals in BFSI, hi-tech, and healthcare to offset the impact from spending pressure. While the company has managed to ward off such pressures in the past, the challenge at present is to do it on a slightly larger scale without impacting its margin expansion ambition, Kotak cautioned.
Q1FY26 Ebit margin at 15.5% fell 10 bps sequentially, missing consensus estimate of 15.6%. Margin was hurt by headwinds of delayed project ramp-up, adverse currency movements, and higher amortization expenses.
With annual wage hikes deferred by one quarter and ESOP costs expected to remain stable in the near-term, there is some room for margin expansion, but that may not be enough.
According to a BOB Capital Markets report dated 24 July, Persistent’s Ebit margins at 15-16% are high when compared to its peers (which are at 13-15%) and even some tier-1 companies. So, Persistent’s earnings per share growth, which benefited from margin expansion in the past five years, will now be solely dependent on revenue growth, BOB Capital Markets said.
So far in 2025, the Persistent stock has declined 20%, similar to the Nifty IT index’s 18% fall. The stock trades at 37x FY27 earnings estimates, show Bloomberg data. This is a steeppremium to tier-1 IT stocks, leaving no room for disappointment.
“Since its pivot towards the services business, Persistent Systems has seen solid revenue growth outperformance on the back of its strong product engineering capabilities,” BNP Paribas Securities India said in a report dated 24 July.
However, a slowdown in revenue growth could raise concern among investors that Persistent is not immune to macroeconomic impacts after all, it added.
