Shares of mid-cap IT player Persistent Systems Ltd tumbled seven percent in the early session on Thursday, July 24, after posting its earnings for the quarter ended June 30, 2025 which came in under expectations in an uncertain macro environment.
Persistent Systems' revenue for the quarter grew 3.9 percent or 3.3 percent in constant currency terms to $389.7 million. The revenue growth was led by the BFSI arm, (up 9 percent QoQ) and Software, Hi-Tech & Emerging Industries (up 3.6 percent), while Healthcare & Lifesciences (down 1.9 percent) saw a decline, primarily due to planned offshore shift at some of the large customers.
However, the firm's headline EBIT margin contracted by 10 bps QoQ to 15.5 percent. This margin contraction included a 230 bps benefit from lower ESOP costs. Adjusting for this, core margins stood at ~13.2 percent, down 240 basis points.
Going ahead, the firm's management remains confident about the medium-term growth momentum, although elevated macro and geopolitical uncertainty may cause a near-term blip, as clients adopt a more cautious stance.
Further, the management believes that any improvement in the broader market landscape could prove to be positive for the business. For FY26, the company expects growth across all verticals, with BFSI leading the pack, followed by Hi-tech and Healthcare.
At 9.45 a.m., Persistent Systems shares were quoting Rs 5,196.5, lower by 7.3 percent on the NSE.
Motilal Oswal said it factored in margin expansion of 80 bps over FY26E (another 60 bps by FY27) despite the management reiterating its target of 200-300 bps margin expansion over the medium term.
"We project an 18 percent USD revenue CAGR over FY25-27 for the firm, which, combined
with margin expansion, could result in a ~25 percent EPS CAGR," it added. The brokerage maintained its 'buy' call, with a target price of Rs 6,800 apiece.
Nomura lowered its target to Rs 5,510, compared to Rs 5,700 earlier, while maintaining its 'neutral' outlook amid rich valuations. The brokerage said it prefers Coforge in the mid-cap IT space.
JM Financial concurred on the valuations front. The brokerage noted that Persistent Systems' multiples of 42x FY27 leaves limited scope of disappointment. "That could weigh on near-term performance. We would advise buy on dips." The brokerage, however, retained its 'buy' call, with a Rs 6,720 target.
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