Persistent Systems Ltd's shares opened 8% lower on Monday, hitting a two-year low, after the Pune-based IT services firm announced its biggest acquisition since listing in 2010 over the weekend.
At least four brokerages have raised concerns about Persistent's $1.3 billion acquisition of Nagarro, flagging the German IT firm's muted growth outlook and intense competition in the enterprise resource planning (ERP) services market.
The company announced the Indian IT industry's second-largest acquisition on Saturday, expecting the deal to propel it past Mphasis Ltd and Coforge Ltd to become India's seventh-largest IT services company, with combined annual revenue of about $2.9 billion.
Persistent ended 2025-26 with a revenue of $1.65 billion, up 17% year-on-year. In contrast, Nagarro reported a revenue of $999 million for 2025, growing just 2.8%. While Indian IT services firms follow the April-March financial calendar, Nagarro follows the January-December financial calendar.
The stark difference in growth rates became a point of concern. Despite Persistent holding an investor call on Sunday to address questions, its shares opened 8.4% lower on Monday at ₹4,448.15, their lowest level since June 2024.
The Persistent stock was down 10%, compared with a 1% decline in the Nifty IT at the time of publishing.
“While valuations on an EV/sales (enterprise value-to-sales) basis seem reasonable, we expect the acquisition to dilute the combined entity's revenue growth and profitability profile in the near term,” said Sameer Pardikar, IT services analyst at Elara Capital, in a 28 June note.
A risky bet
Nagarro’s profitability did not cheer investors much either. In 2025, Nagarro posted an operating margin of 10.9%, compared to Persistent’s 15.6%, which had expanded by 90 basis points over the previous year.
Moreover, Persistent's chief executive, Sandeep Kalra, claimed that the combined entity’s operating margins would not be lower than Persistent's overall margins, as the company would pursue “cost synergies” and reinvest its cash in new growth areas.
But a second brokerage pointed to a challenging demand environment as a key hurdle for the company.
“Turning around Nagarro’s revenue growth profile in a challenging demand environment with multiple headwinds (AI deflation, shift of spends to AI native players and global capability centres, weak macros) remains a monitorable,” said ICICI Securities analysts Ruchi Mukhija, Aditi Patil, and Seema Nayak, in a 29 June note.
Nagarro’s slow revenue growth is partly attributable to management’s focus on taking it private in 2025, which Persistent’s management termed as a “distraction”.
“From an uber perspective, if you look at it, they have, on a constant currency basis, grown more than 5% even in these environments. And keep in mind, if I may say so, they were distracted for some time when they were taking a transaction to take Nagarro private in the last year,” Kalra said.
Integration of an asset of this size in a relatively challenging geography such as Europe is fraught with multiple risks, said Nuvama Institutional Equities analysts Vibhor Singhal and Yukti Khemani in a 28 June note.
"Until now, Persistent commanded a significant valuation premium by virtue of its ‘risk-free’, ‘industry-leading’ growth profile. With the Nagarro acquisition, both these are likely to come under a cloud, especially with already rich valuation,” the note read.
The Nuvama analysts added that the acquisition is likely to bring down Persistent’s growth profile.
Inorganic growth doesn't sell
A fourth brokerage highlighted that the entry into the ERP space would not benefit the company.
“Persistent has historically differentiated itself through digital engineering and cloud-led services, while ERP is a larger, relatively mature, and more competitive market. We believe execution and differentiation in this segment will be important monitorables over the medium term,” said Motilal Oswal analysts Abhishek Pathak and Keval Bhagat, in a 28 June note.
ERP is a single software system that connects various business functions in running offices. These functions include paying staff, managing inventory, taking orders, managing suppliers, and handling human relations.
Nagarro strengthens Persistent's capabilities across ERP (particularly systems, applications, and products, or SAP), consulting, and customer experience (CX), while adding a stronger presence in manufacturing-led engineering.
This reflects a broader jitteriness among shareholders towards big bang acquisitions. Days after Coforge announced the Indian IT’s largest acquisition on 26 December, its shares declined up to 2.4% after an initial spike.
Coforge acquired US-based data analytics firm Encora for $2.39 billion, aiming to achieve about $2.5 billion in full-year revenue.
The Persistent stock was down 10%, compared with a 1% decline in the Nifty IT at the time of publishing.
