Persistent Systems Falls 6% Intraday on Margin Miss

Persistent Systems shares fell as much as 6% to Rs 5,492 on Friday before recovering to close at Rs 5,741, down 1.70%, after the IT services firm reported a 25% drop in September quarter profit, with margins missing estimates even as revenue jumped 30%. Consolidated net profit fell 25.4% year on year to Rs 351.51 crore and 27% from the June quarter, mainly due to Rs 185.34 crore of expenses tied to the proposed Nagarro acquisition. Revenue from operations rose 30.3% to Rs 4,663.9 crore, up about 8% sequentially. EBIT margin slipped to 15% from 16% in the previous quarter. Order intake was USD 633.5 million in total contract value and USD 481 million in annual contract value. A subsidiary had secured about 94% of Nagarro as of October 6. Revenue growth of 30% is strong for the sector, but investors focused on the margin dip and the acquisition costs. Analysts cited higher amortisation, interest expense and FX losses, and noted some deals slipped into the December quarter because clients delayed decisions. JPMorgan cut its margin forecasts by 40 to 60 basis points. Integrating Nagarro will be the key variable, since it adds scale but also cost and execution risk. The stock has ranged between Rs 4,244.50 and Rs 6,599 over the past 52 weeks, with a market cap of around Rs 90,564 crore. Monday’s trading will show whether the market treats the profit fall as one-time acquisition noise or as a sign of lasting margin pressure. Disclosure: Palash Kag, Proprietor, Sarathi Research (SEBI Reg. No. INH000012740). No position held in Persistent Systems. This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy, sell, or hold any security. Please consult a registered advisor before making investment decisions.