Persistent Systems shares tumbled 9.1% to a fresh 52-week low of Rs 4,400.50 on the NSE after it announced two strategic developments – the first and most important one is the acquisition of Nagarro for an enterprise value of 1.27 billion euros. This is one of the biggest overseas acquisitions by an Indian IT services firm.
The other important news is the $650 million plus services contract over 6.5 years with an existing US-based technology customer.
Brokerages are, however, divided on the potential implications of the developments on the share price.
Nagarro acquisition: Key details
The Persistent offer is at a 140% premium over Nagarro’s closing share price from June 25 and a 94% premium compared to its three-month volume-weighted average price. The transaction is likely to be finalised by either Q4CY26 or Q1CY27.
The acquisition is aimed at diversifying Persistent Systems’ business into Europe and ME, verticals of Manufacturing, Retail, and Public services, while adding SAP and CX capabilities.
Persistent has already obtained the support of Lantano Beteiligungen GmbH, the largest shareholder of Nagarro, which has consented to offer its whole 21% ownership in the firm.
According to Persistent, combining Persistent’s AI-led engineering capabilities, North American scale and partnership depth with Nagarro’s European business, complementary verticals, AI expertise, and ERP and CX delivery, to create a $2.9 billion AI-led engineering company with over 46,000 employees across more than 40 countries.
Nuvama on Persistent Systems
Post this deal, brokerage firm Nuvama International Equities downgraded Persistent Systems to a ‘Hold’ rating from a ‘Buy’ rating. It also slashed the price target to Rs 4,800 from Rs 6,100, saying that the Nagarro acquisition is “a great leap, greater risk”. The new price target looks at 0.87% downside from the closing price of June 25.
“We like the business logic of the acquisition along with the reasonable transaction valuations. However, the transaction is likely to lower the growth profile of PSYS while imparting integration risk to its business.”
The brokerage said that the current valuations are already rich at 33x FY27 price to earnings, and are unlikely to sustain.
Motilal Oswal on Persistent Systems
Strategically, Motilal Oswal sees this acquisition as addressing Persistent’s long-standing objective of building scale in Europe, meaningfully broadening its vertical exposure, and strengthening its positioning for larger global transformation programs.
The brokerage has a ‘Buy’ recommendation with a target price of Rs 6,200 per share. This implies nearly 28% upside from current levels. They believe that the “limited customer overlap and complementary geographic presence also create a reasonable cross-sell opportunity.”
Motilal Oswal added that the acquisition appeared priced at 9.1x EV/EBITDA, “which we believe is a reasonable valuation for a business of Nagarro’s scale. However, it remains to be seen how much value Persistent can extract from the acquisition through integration and cross-selling.”
However, the brokerage has a relatively more cautious view on the addition of ERP, a more mature and competitive service line than Persistent’s core digital engineering business.
While the management expects margins to remain broadly stable, they would await “greater clarity on integration, cost synergies, and the path toward margin convergence, given Nagarro’s lower profitability. Execution over the next few quarters will remain the key monitorable.”
Nomura on Persistent Systems
Nomura said that this acquisition fits Persistent’s goal of reaching $5 billion of revenue by FY31 with a higher presence in Europe. However, given the large size of the transaction (67% of its existing size), a seamless execution is critical to create value for the shareholders in the medium to long run.
Interestingly, Persistent will keep the company as a separate entity for two years post the closure, with the existing management of Nagarro running the business. The large deal announcement in its core business ($650 million with an ACV of over $125 million) provides visibility for continued growth momentum in FY27.
However, the brokerage house maintained its ‘Neutral’ rating on the stock and retained its price target at Rs 5,200, implying an upside of 7.4% from the closing price of June 25.
Persistent Systems share price performance
The share price of Persistent Systems has declined 0.91% in the last five trading days. The stock has dropped 6.7% in the past one month and 22% in the last six months. Persistent Systems’ stock price has declined 20% over the previous 12 months.