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IT Result Preview – Muted growth in a strong quarter, Persistent systems acquisition creates doubts on future performance

ICICIdirect Research 03 Jul 2026 DISCLAIMER

We expect Q1FY27 revenue growth for the large cap IT Services companies to be at -0.9% to 1.1% QoQ CC, as delay in deal ramp up coupled with AI led deflation and some impact of middle east tension will keep the topline growth muted. Tech M with 1.1% QoQ CC growth will lead the large cap pack while HCL Tech, given the client specific challenges will witness 0.9% QoQ decline. Among Tier 2, Coforge will report flattish organic growth, as guided earlier, given the exit of lower margin India business, while Persistent Systems is likely to report 2-2.5% QoQ growth.
On the margins front, we expect flattish margins for most players, given the lack of operating leverage, while TCS will witness 150 bps QoQ margin decline on wage hike impact. Commentary of companies on growth and margins outlook will be key amidst rising concerns on AI led impact.

Persistent Systems: Nagarro Acquisition - Execution/Integration in focus

  • Persistent Systems announced the acquisition of German digital engineering firm Nagarro for an enterprise value of ~US$1.27 billion (~US$ 1.5 bn).
  • The Nagarro acquisition expands Persistent’s revenue run-rate to ~US$2.9 billion, significantly strengthens its European exposure (22% of revenue vs 9% earlier), adds 180+ scalable new clients with >US$1mn annual revenue. Management also expects the deal to be cash and reported EPS accretive from year-1 excl. one-time transaction costs, though we expect the acquisition to be EPS neutral.
  • That said, the transaction is expensive and heavily execution dependent as Persistent is paying a steep premium (~140% to undisturbed price at 1.27x EV/Revenue and 9.1x EV/Adj. EBITDA on CY25 financials) for a business whose organic growth has slowed to mid-single digits, while Nagarro’s lower profitability (13.9% adjusted EBITDA margin vs Persistent’s ~19%) is likely to dilute consolidated margins in the near term. In addition, the deal is fully debt-funded, pushing pro-forma net debt/EBITDA to ~1.9–2.5x.
  • Given Nagarro’s recent slowdown, successful value creation will hinge on Persistent’s ability to revive Nagarro’s growth, expand margins, retain leadership, as well as extract revenue synergies from cross-selling and account mining.
  • So, successful integration and sustained execution will determine whether the acquisition becomes meaningfully value accretive over the medium term. We have a BUY rating on the stock at TP of ₹5,000 at reduced multiple of 30x FY28E EPS (vs. 36x, earlier) due to lower margin profile and integration led challenges.
View our research recommendation on Tech Mahindra Ltd Also explore more on Research page

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