Persistent Systems is confident of maintaining its operating margins in the 16-17% range for this fiscal. Revenue growth is expected in all three verticals. Vinit Teredesai, executive director and CFO, said Persistent was on track to reach the $ 2 billion run-rate mark in FY27. “The large deal takes us comfortably towards the $2 billion mark,” he said.
Additionally, the acquisition of Nagarro and the synergies that the combined organisation is creating put them in a completely different orbit, Teredesai said. The acquisition was part of its strategy to become a $5 billion organisation by FY31.
During the quarter, the company won a large deal for a high-tech client. It is a $650 million total contract value deal over a period of six and a half years, with a $125 million annual contract value. On a constant-currency basis, it was a 4.1% quarter-on-quarter growth.
The 8.7% sequential drop in net profits was due to a forex loss of Rs 105 crore. According to Teredesai, there was significant volatility in the rupee during the quarter, as it depreciated for the first two months, and appreciated in June as the war eased. This resulted in some hedging losses.
Their debtors were revalued at the exchange rate prevailing on March 31, resulting in revaluation losses at the end of June. All these together contributed to the forex losses, he said. This should not be viewed as a recurring trend. These are unrealised mark-to-market losses, and most of these losses have been reversed in July, Teredesai said.
He pointed out that it was their 25th consecutive quarter of delivering more than 3% quarter-on-quarter growth, and very few companies are close to that benchmark. “The Nagarro acquisition will only strengthen our position and put us on a different trajectory. If you look at all the competitors who have announced results so far, our performance still stands in the top quartile,” he said.
On the Nagarro acquisition, Teredesai said Persistent and Nagarro together would create a $2.9 billion engineering organisation led by AI capabilities. “We complement each other well. Customer-wise, there is very minimal overlap. Capability-wise, we bring strong cloud, infrastructure, and managed services capabilities to them. From their side, they bring SAP capabilities,” he said.
Teredesai said Nagarro’s enterprise valuation at €81 per share is around 1.2 times revenue and about 8 to 9 times last year’s EBITDA. “You do not get a billion-dollar European presence, a well-diversified business, 18,000 employees, strong digital expertise, SAP capabilities, and all these strengths at a low price.
At the same time, we do not believe we have paid a high price,” he said. “As a combined organisation, our dependence on the US will reduce from over 80% to around 62%. Their European presence would increase from 8% to 22%.
Persistent secured finance of €1.4 billion from Barclays for 18 months. “We are evaluating multiple options for long-term financing. We are in discussions with multiple banks and a consortium of lenders to replace the bridge loan with a longer-term financing structure. It will most likely be a dollar-based loan, a euro-based loan, or a combination of both.
This will also act as a natural hedge against the hedging we currently do for our receivables,” Teredesai said. “If we receive 100% subscription, then it will be a €1 billion loan. If the subscription is 70%, then we will need only 70% of that amount,” he said.
Persistent expects to launch the open offer in the next few weeks. Regulatory approvals are expected by December-January, and consolidation of Nagarro’s financials in Q4.