PERSISTENT - Persistent Systems Limited Share Price

For Q1 FY26, Persistent Systems reported a revenue of $389.7 million, reflecting a growth of 3.9% quarter-on-quarter and 18.8% year-on-year. In rupee terms, revenue grew by 2.8% quarter-on-quarter and 21.8% year-on-year, translating to Rs.33,335.9 million. The EBIT margin for the quarter stood at 15.5%, with a profit after tax of Rs.4,249.4 million, marking a growth of 38.7% year-on-year and a PAT margin of 12.7%. The Total Contract Value (TCV) for the quarter was $520.8 million, with new bookings contributing $337 million.

Management outlined several forward-looking points, emphasizing a commitment to reaching $2 billion in revenues by FY27, which would require a compounded annual growth rate of 19%-20%. The company is focusing on a dual strategy of both organic growth and potential tuck-in acquisitions, particularly in Europe, to enhance competitive capabilities.

Additionally, management noted a strong order book, which included a healthy pipeline for future growth, despite recent macroeconomic uncertainties leading to cautious decision-making among clients. The top five customers grew by 22.8%, while significant growth was also seen across various customer segments.

A shift to an AI-led platform-driven strategy was highlighted, with the launch of SAVA 3.0 aimed at enhancing engineering productivity. The company also plans to strengthen its organizational capabilities, especially in AI-driven initiatives, which they believe will drive future growth.

With these initiatives, the management remains optimistic about achieving sustained growth despite current uncertainties in the market.

Question 1: "How should we think about the trajectory going forward given the macro, with the sequential growth slowdown to 3.3%?"

Answer: We don't provide specific forward-looking guidance. Nonetheless, our overall growth was 3.9% in USD terms. Factors outside our control, like currency movements, affected us. However, our order book and pipeline remain healthy. If market conditions improve, we anticipate a positive trend. We'll adapt our growth strategies based on evolving circumstances.

Question 2: "Given the onshore to offshore movement, will the healthcare vertical remain under stress?"

Answer: I expect healthcare to grow this year, though the lowest among our sectors. The planned transitions to offshore work are strategic, reducing costs in the long term. While we might not see growth at previous rates, I'm confident all three verticals"”BFSI, Hi-Tech, and healthcare"”will show growth in the coming quarters.

Question 3: "Could the lower book-to-bill ratio indicate near-term growth challenges?"

Answer: While our book-to-bill has decreased, we're confident about our revenue growth due to our executable order book. The pipeline for larger deals is healthy, and while we won't forecast specific numbers, we believe we can operate within our historical growth patterns.

Question 4: "What are the impacts of delaying wage increments on attrition and our workforce?"

Answer: Current market uncertainty, not the wage delay, is causing the rise in attrition. While attrition has generally increased industry-wide, we don't foresee ongoing significant challenges. We'll monitor trends and adjust as necessary to retain talent and ensure stability.

Question 5: "Will the ESOP cost impact margins, and how should we model this into FY26?"

Answer: The ESOP cost has decreased this quarter, but it varies with annual grants. We expect it to remain stable through the year, with potential reductions in FY27. We're focused on maintaining profitability while managing operational costs effectively.

Question 6: "What are your insights on healthcare spending, especially considering potential impacts from regulation changes?"

Answer: Healthcare spending is under scrutiny due to regulatory impacts like tariff changes and federal funding constraints. Uncertainty in funding affects client decisions, but we are seeing shifts towards cost control measures and vendor consolidations which can create opportunities for us.

Question 7: "Are you planning for organic versus inorganic growth towards the $2 billion target by FY27?"

Answer: We aim for a balanced growth mix of organic and inorganic strategies, targeting a CAGR of 19-20%. While we're focused on organic growth, we are open to smaller, capability-led acquisitions, especially in Europe to further strengthen our market position.

These questions and answers encapsulate the key discussions with a focus on revenue growth, market conditions, and strategic directions as stated in the earnings call transcript.