Persistent growth continues, but rising acquisition costs could impact overall profitability for businesses
Following a major acquisition announcement, Persistent Systems stock has seen a remarkable rebound. In its latest June quarter results, the company reported robust revenue growth, boosting its future earnings outlook. However, upcoming costs linked to interest and wage hikes could pressure profit margins. As a result, investors can expect the stock to trade within a range influenced by the…
In the wake of Persistent Systems' acquisition of Nagarro for $1.4 billion, the company's stock has surged 31% from its 52-week low. The BSE Infotech index has also gained 10% during the same period. This increase in stock value is attributed to Persistent's focus on AI-driven client engagements and a better-than-expected June quarter result.
The company reported a 3.8% sequential revenue growth for the June quarter, largely driven by a 22% increase in India while the US market grew modestly by 0.8%. Persistent's total contract value (TCV) of order bookings reached $1.1 billion, fueled by a massive $650 million deal with a US client. However, the company's operating margin may face pressure due to salary increases in July and the $1.6 billion bridge loan taken to fund the acquisition, resulting in higher interest expenses.
Despite these challenges, analysts have raised valuation multiples, leading to a higher target price of ₹5,870 for the stock, up from the earlier ₹4,755. The stock currently trades at ₹5,647 on the BSE.
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