Strong order flow and margin improvement to support Persistent’s growth

Shares of Persistent Systems have risen 8% in the three trading sessions since the company reported second-quarter results on Oct. 14. The mid-sized IT exporter reported better-than-expected sequential revenue growth, operating margin expansion and record order booking for the September quarter. A recovery in the healthcare sector and a quarterly postponement of the salary review contributed to the company’s excellent performance. The company is on track to report double-digit revenue growth for FY26 and maintains its guidance of $2 billion in revenue in FY27. It posted revenues of $1.4 million in FY25 and $1.5 billion in the trailing twelve months to September 2025.

Persistent showed a recovery in sales in the September quarter after posting five-quarter low growth in the previous quarter. Revenue grew 4.2% sequentially to $406.2 million, compared to a 3.9% increase in the previous quarter. The acceleration can be attributed to a 4% sequential improvement in healthcare sector revenue, which contributes over a quarter to revenue. In the previous quarter, the division recorded a turnover decline of 2.2%. The other major divisions of hi-tech (40% of sales) and banking and finance (35%) continued to grow sequentially in the September quarter.

The company reported a record quarterly operating margin (EBIT margin) of 16.3% for the second quarter, helped by 80 basis points of support from the reversal of software licensing fees for a customer. The company’s CFO Vinit Teredesai told ET that this should not be considered a one-time benefit as this is expected to repeat in the future as well. The margin also reflected 60 basis points of currency benefit and a further 20 basis points from increased offshoring of work for some clients.

Persistent has implemented salary revisions for employees since October 1, which is expected to have a 180 basis point impact on margin. However, Teredesai is confident that the net impact will be limited to 80-100 basis points due to high headcount and improving offshoring component in some of the projects.

The company secured orders worth $609.2 million, a record high, driven by renewal projects as the share of new deals in total contract value (TCV) fell to 50.8%, compared to 64.7% in the previous quarter and 73.7% a year ago.

While employee turnover has remained broadly stable at 13.8%, it has increased from 12% a year ago. To address this issue and increased occupancy rates above 88%, the company has expanded its workforce over the past four quarters. For the September quarter, the number of employees increased by 884 to 26,224. Motilal Oswal expects revenue and profit growth of 19% and 26% between FY25 and FY27. The broker has reiterated a buy call on the stock with a target price of Rs6,550. The stock closed at Rs5,755.8 on the BSE on Friday.