Brokerage firm Prabhudas Lilladher has downgraded Persistent Systems to 'Accumulate' from 'Buy' with a price target of Rs 6,550. This change follows mixed quarterly results, where strong revenue growth in banking and high-tech sectors was offset by margin pressures and slower deal closures in the healthcare segment. Investors may watch for margin improvement in future quarters.
Persistent Systems has seen a shift in its rating by brokerage firm Prabhudas Lilladher, which lowered its stance to 'Accumulate' from 'Buy' with a new price target of Rs 6,550. This adjustment comes after the company reported quarterly results that highlighted both operational strengths and growing costs. While the firm saw revenue growth of 7.8% in constant currency terms, this was dampened by operating profit results that did not meet market estimates.
Revenue growth was supported by solid execution in the banking, financial services, and high-tech sectors. The scaling of a large USD 650 million contract played a significant role in sustaining this growth. Despite this, the company's Earnings Before Interest and Taxes (EBIT) margin settled at 15.0%, which was lower than analyst estimates. A key factor behind this margin miss was a 140-basis-point impact from annual wage revisions and a 32% quarter-on-quarter increase in software and licensing costs. These higher expenses, common in the IT services sector as companies balance talent costs with operational efficiency, have temporarily constrained profitability.
Adding to the challenge, the healthcare segment, specifically within the United States payer landscape, faced headwinds. The company reported slower deal conversion cycles in this area, which suggests that clients are delaying decision-making processes. This trend is notable as it impacts the speed at which new contracts turn into revenue. Despite these hurdles, the company’s management has maintained an EBIT margin target of 16-17% for the 2027 fiscal year.
Looking ahead, the brokerage firm has slightly lowered its fiscal 2027 EBIT margin forecast to 16.0% from 16.3%. Analysts expect that operating margins may stabilize in the second half of the fiscal year as the impact of recent wage revisions is absorbed and the significant contract scales up further. The decision to downgrade the rating was also influenced by the stock's recent valuation, which had expanded in previous trading sessions. The core monitorable for investors moving forward will be the timing of deal closures and the company's ability to protect its profit margins amid ongoing sector-wide cost pressures.