About Persistent Systems

Persistent Systems, headquartered in Pune, is a leading Indian technology company specialising in software product engineering, cloud computing, IoT (Internet of Things), endpoint security, big data analytics, and related digital transformation services. The company has been among the faster-growing IT-services names in India, combining high-value engineering work, a growing global client base, and a relatively lower dependence on legacy services compared with many peers. Its leadership under CEO Sandeep Kalra and CFO Vinit Teredesai emphasises innovation, client diversification, and openness to new technology cycles like Generative AI and Advanced Engineering.

UBS has initiated coverage on Persistent Systems with a Buy recommendation and a target price of ₹6,730. Their outlook is based on several structural strengths and recent performance metrics that, according to UBS, are not fully reflected in current valuations.

• Strong execution over FY2020-25: Persistent has delivered superior growth, among the fastest in the Indian IT services sector. Revenue CAGR between FY2020-FY2024 was nearly 29%, led by BFSI, Healthcare & Life Sciences, and Software/HiTech verticals.
• Significant market share gains: Over the past five years, Persistent has been among the companies that have gained most in terms of market share compared with peers. Analysts have flagged this kind of competitive shift as very meaningful in the IT services space.
• Resilient margins: While many competitors have seen margin compression, Persistent has managed margin expansion versus its peers. For FY2024-25, the company reported an EBIT margin of ~14.7% on nearly 19% YoY revenue growth.
• Focus on product engineering & limited legacy exposure: Persistent is leaning into higher-value engineering work rather than just traditional legacy services. This gives it more leverage in cycles of newer demand like GenAI and cloud engineering, which demand innovation and deep technical skills.
• Positioned well for the GenAI cycle: According to UBS, among mid-tier and large-cap Indian IT peers, Persistent is one of the better positioned to benefit from rising demand in generative AI, advanced engineering, and R&D outsourcing.

Here are some of the key recent numbers that support the UBS thesis:

Despite strong growth, UBS believes the market is pricing Persistent Systems on assumptions that are too pessimistic. Their key points:

• The stock is trading at ≈ 44× 1-year forward Price-Earnings ratio, which is high, but valuations appear to embed relatively flat margins and modest revenue growth of 14-15% CAGR — lower than what Persistent has demonstrated. UBS thinks there is upside if margin expansion or revenue acceleration occurs.
• If Persistent can maintain or improve its margin profile (even modestly above current levels), and sustain its revenue CAGR in the high teens to low twenties, the current price may understate the upside potential.
• Risks are present — including talent costs, competitive pressure, macro cycles, client concentration, and possible delays in ramp-ups — but UBS sees them as manageable given Persistent’s execution track record.

• Rising employee costs & attrition: Like all high-growth IT firms, Persistent faces pressure on talent acquisition, retention, and compensation. These could eat into margins if not managed carefully.
• Currency headwinds: Volatility in USD/INR and other currencies can affect profitability, especially when offshore work and on-site obligations are involved.
• Legacy / Low-margin services drag: Although Persistent is focused more on product engineering, any reversion or slow migration away from legacy engagements could hurt profitability.
• Competitive landscape & pricing pressure: The IT services industry globally is competitive; GenAI hype may invite more entrants or lead to aggressive pricing.
• Execution risk in scaling GenAI and advanced engineering work: New technology cycles often carry uncertainty — investment may lag returns, or client demand may be slower to mature.

If you hold or are considering buying Persistent Systems, here are the distilled points you should reflect on:

• At current valuation (~44× forward PE), market appears to assume moderate margin contraction or stagnation — but Persistent’s recent performance suggests it can do better.
• If revenue continues growing at ~18-20% YoY and margins remain stable or improve slightly, there may be upside to UBS’s target pricing.
• This is a stock for those with medium to long-term horizons; shorter-term volatility is likely, especially as investment in GenAI scales and margin pressures surface.
• Monitor Q1 & H1 FY26 results closely — especially margin trends, vertical performance (Healthcare, BFSI), and how Persistent handles rising costs and delivery mix.

UBS’s Buy call on Persistent Systems appears grounded in real strengths: strong revenue growth, improving margins, and good positioning for disruptive trends like GenAI. While the stock is richly valued, the valuation may be justified — or possibly even conservative — if Persistent continues to outperform expectations on margin and top-line growth. For long-term investors who believe in the secular shift toward AI, cloud, and engineering services, this could be one to watch closely.

Carefully assess risks such as wage inflation, global macro pressures, execution delays, and competitive moves. If these are managed well, Persistent Systems could continue to reward shareholders. As always in markets, some caution is warranted even in bullish cases.

UBS’s initiation of a Buy rating on Persistent signals that current market valuations may be underestimating its growth & margin potential. If Persistent delivers ~18-20%+ revenue growth, holds or expands margins, and capitalises on the GenAI wave, the upside may be meaningful. That said, expect volatility, and focus on near-term margin trends and vertical/region performance to validate the bullish case.

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