News

This is a Mint Premium article gifted to you. Subscribe to enjoy similar stories.

Persistent Systems Ltd is handling the muted demand scenario in the IT sector well. In the September quarter (Q2FY26), the tier-2 company's sequential constant currency revenue grew 4.4%, exceeding the consensus estimate of 3.5%. This pushed the stock up more than 8% in the past two days. Growth was broad-based, led by momentum in the banking, financial services, and insurance (BFSI) vertical, healthcare and the Europe geography.

After a muted first quarter, deal wins gained traction in Q2FY26, aiding revenue visibility. The trailing 12-month total contract value (TCV) rose 15% year-on-year to $609 million, implying a 1.5x book-to-bill ratio, while quarterly annual/average contract value (ACV) bookings grew 28%.

Given the robust deal pipeline and strong execution seen so far, the management reiterated its $2 billion revenue ambition for FY27. It is banking on strong growth through FY26 led by BFSI and hi-tech, with healthcare gradually recovering.

Earnings before interest and tax (Ebit) margin improved 80 basis points (bps) sequentially to 16.3% in Q2FY26 versus consensus estimate of 15.7%. Gains from lower software-licence costs, currency tailwinds and a higher offshore mix outweighed the drag from higher provisions and slightly lower utilisation.

Wage hikes scheduled for October 2025 could trim Q3FY26 margins by about 180 bps, though better offshoring and cost control should cushion part of the hit. Even so, caution is warranted.

“Utilization stands at 87% and key margin levers are now peaked out," said Motilal Oswal Financial Services report on 14 October. SG&A (selling, general, and administrative) leverage continues to be a key margin lever and currency gains have been broadly positive in Q2FY26. If the currency moves unfavourably, it could become a near-term risk, according to the report.

The management has guided for margin expansion of 100 bps over FY26 and another 100 bps rise in FY27.

For now, the stock has been rewarded for its stellar innings and superior revenue growth versus peers. It is up 22% in the last six months versus 6% rise in the Nifty IT index, but valuations have become expensive.

At about 41x FY27 estimated earnings, according to Bloomberg data, it appears that a good deal of optimism is already priced in. The question is how long this streak can continue amid prevailing client caution on discretionary IT spending, tariff tantrums, and rising competitive intensity.

Further, its $2 billion exit revenue target in FY27 hinges on strong growth in each vertical. “In our view, challenges in healthcare may persist for a few quarters and subsequently, growth may be weak in this vertical," said Elara Securities (India) report on 15 October. So, the company may fall short of its revenue target, it added.

Download the Mint app and read premium stories

Log in to our website to save your bookmarks. It'll just take a moment.

You are just one step away from creating your watchlist!

Oops! Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

This is a subscriber only feature Subscribe Now to get daily updates on WhatsApp