Nagarro deal jitters drag Persistent's shares to a two-year low
Persistent Systems Ltd's shares opened 8% lower on Monday, hitting a two-year low, after the Pune-based IT services firm announced its biggest acquisition since listing
Persistent Systems Ltd's shares opened 8% lower on Monday, hitting a two-year low, after the Pune-based IT services firm announced its biggest acquisition since listing in 2010 over the weekend. At least four brokerages have raised concerns about Persistent's $1.3 billion acquisition of Nagarro, flagging the German IT firm's muted growth outlook and intense competition in the enterprise resource planning (ERP) services market. The company announced the Indian IT industry's second-largest acquisition on Saturday, expecting the deal to propel it past Mphasis Ltd and Coforge Ltd to become India's seventh-largest IT services company, with combined annual revenue of about $2.9 billion. Persistent ended 2025-26 with a revenue of $1.65 billion, up 17% year-on-year. In contrast, Nagarro reported a revenue of $999 million for 2025, growing just 2.8%. While Indian IT services firms follow the April-March financial calendar, Nagarro follows the January-December financial calendar. The stark difference in growth rates became a point of concern. Despite Persistent holding an investor call on Sunday to address questions, its shares opened 8.4% lower on Monday at ₹4,448.15, their lowest level since June 2024. The Persistent stock was down 10%, compared with a 1% decline in the Nifty IT at the time of publishing.
“While valuations on an EV/sales (enterprise value-to-sales) basis seem reasonable, we expect the acquisition to dilute the combined entity's revenue growth and profitability profile in the near term,” said Sameer Pardikar, IT services analyst at Elara Capital, in a 28 June note. A risky bet Nagarro’s profitability did not cheer investors much either. In 2025, Nagarro posted an operating margin of 10.9%, compared to Persistent’s 15.6%, which had expanded by 90 basis points over the previous year. Moreover, Persistent's chief executive, Sandeep Kalra, claimed that the combined entity’s operating margins would not be lower than Persistent's overall margins, as the company would pursue “cost synergies” and reinvest its cash in new growth areas. Also Read | AI, weak demand cloud FY27 outlook for Indian IT But a second brokerage pointed to a challenging demand environment as a key hurdle for the company. “Turning around Nagarro’s revenue growth profile in a challenging demand environment with multiple headwinds (AI deflation, shift of spends to AI native players and global capability centres, weak macros) remains a monitorable,” said ICICI Securities analysts Ruchi Mukhija, Aditi Patil, and Seema Nayak, in a 29 June note.
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