PERSISTENT Q2 FY27 Earnings Call: 26th Straight Quarter of Growth, Nagaro Deal Costs Weigh on PAT

26th Straight Quarter of Growth, But Reported PAT Hit by Deal Costs

• Revenue of $487.6M (Rs.46,639M) — up 7.8% QoQ, 20% YoY in USD and 30.3% YoY in INR, marking the 26th consecutive sequential quarter of growth in Q2 FY 2026-2027.
• EBIT of Rs.6,977.2M at 15% margin — up 19.5% YoY but margin down 130 bps YoY; QoQ margin declined 100 bps.
• Reported PAT of Rs.3,515.1M (margin 7.5%) — down 25.4% YoY, hit by Rs.1,853.4M of Nagaro transaction costs (~3.1% PAT impact); operating PAT was Rs.4,951.5M (10.6% margin, +5% YoY).
• Net other income turned negative at Rs.131.2M — vs positive Rs.414.9M in Q1 FY 2026-2027, with a foreign exchange loss of Rs.455.8M.
• Cash and investments of Rs.29,996.7M (~$315M) as of Sep 30, 2026; billed DSO improved to 50 days from 61 in Q1; ROCE (ex-cash) at 45.6% vs 43.6% in Q1.
• ESG score improved to 83.3 for FY 2025-2026 (from 81.7) per SES, a SEBI-registered rating provider.

Softer Bookings vs Q1, But TTM Metrics Remain Strong

• Q2 FY 2026-2027 TCV of $633.5M and ACV of $481M — softer than Q1 FY 2026-2027 (TCV $1.146B, ACV $536.8M); management cited macroeconomic slowdown, slower client decision-making, and Middle East dynamics.
• YoY TCV growth of 4% vs the typical 15-16% — CEO Sandeep Kalra flagged this as below trend, but pointed to TTM TCV growth of 36.3% and TTM ACV growth of 21.9% as stronger underlying indicators.
• New bookings TCV of $367.1M and ACV of $262.3M in Q2 FY 2026-2027.
• Top client buckets grew strongly YoY — top 5 customers +38.9%, top 10 +29.9%, top 100 +21.6% in Q2 FY 2026-2027.
• North America revenue grew 22.5% YoY — while Europe declined 8.5% due to two client-specific ramp-downs.
• Growth driven by a large High-Tech deal and a BFSI vendor consolidation exercise — per CEO Sandeep Kalra; BFSI themes included vendor consolidation, data/AI readiness modernization, and AI-enabled mainframe modernization.

Outcome-Based AI Deals, New Partnerships, and Internal Tool Capitalization

• Software Reinvention Services targets 50% faster product development and 25% faster time-to-market — and demonstrated a 45% cost reduction on existing products for a marquee software company; the construct is outcome-based with assured customer cost savings and a revenue share with a backstop, using Sasva to deflate labor, license, and cloud costs.
• A $650M+, 6.5-year engagement with one of the largest technology companies — won in Q1 FY 2026-2027 for product development, support, and cloud operations; management guided that 75-80% of the deal would ramp by Q2 FY 2026-2027, now reflected in revenue realization.
• AI partnerships expanded in Q2 FY 2026-2027 — Persistent joined Anthropic's Claude Partner Network and earned Microsoft's Agentic Business solution specialization; partner certifications reached 25,000 and AI certifications 58,000.
• Intangible assets under development rose to 0.6% of Q2 FY 2026-2027 revenue — from 0.5% in Q1 FY 2026-2027, covering internal AI tools (Sasva, Iora, GenAI); CFO Vinit Teredesai guided Q3 FY 2026-2027 costs depend on feature development and may increase further.
• 20% of mid-market ISVs are on the "bleeding edge" of AI adoption — per Sandeep Kalra, while BFSI and Healthcare Life Sciences adopt more slowly due to regulatory constraints; clients are also seeking token cost optimization via purpose-built small language models and token FinOps.
• 36 years serving 300 software companies, including 9 of the top 10 technology companies — leveraging the Sasva platform and 3C architecture (Core, Context, Coordination).

Wage Hikes and Large-Deal Ramp Weigh on Margin; No Firm Recovery Timeline

• QoQ margin bridge of −100 bps — wage hikes cost 180 bps (net 140 bps after lower ESOP), utilization 20 bps, and large-deal third-party tool amortization 90 bps; offset by 150 bps from lower SG&A and favorable currency.
• 90 bps margin impact from the large deal ramp-up in Q2 FY 2026-2027 — CFO Vinit Teredesai guided this will gradually normalize over the next 2-3 quarters (Q3 FY 2026-2027 to Q1 FY 2027-2028) as revenue scales.
• High Tech segment margins ~20% lower on incremental revenues — partly due to the new end-to-end ownership deal spanning 20 products, which also drove a ~Rs.900 crore sequential increase in intangibles.
• Headcount of 29,598 (net add of 958) at end of Q2 FY 2026-2027; utilization at 85.8% (down 70 bps QoQ); TTM attrition at 11.9%.
• Management declined to give a specific near-term margin recovery timeline — no firm forward guidance for FY 2026-2027 or FY 2027-2028, but reiterated an aspirational 16-17% margin goal (period unspecified).
• Software license costs rose in Q1 and Q2 FY 2026-2027 — from large-deal ramp-ups and AI tool investments; management expects the trend to continue with the software reinvention practice, describing it as a potential profitability enhancer over the next several quarters.

~94% Share Capital Secured; Regulatory Clearances and Debt Refinancing Pending

• ~94.04% of Nagaro share capital secured — management expects closure by Q4 CY 2026 or Q1 CY 2027, pending RBI and Austrian/Spanish FDI clearances; a more specific expectation of 4-8 weeks (Q3 FY 2026-2027) was given, with a merger squeeze-out targeting full integration within 5-6 months (Q1/Q2 FY 2027-2028).
• Financing plan of USD 1.25 billion — including USD 450 million via equity or equity-linked instruments, with shareholder approval already received.
• ~$50M total acquisition cost — $19-20M incurred in Q2 FY 2026-2027, with the remaining $25-30M over the next 3-4 quarters (through Q1-Q2 FY 2027-2028), covering investment banking fees, bridge loan costs, legal, regulatory filings, and travel; one-time expenses are weighing on reported EPS growth.
• Nagaro's existing debt is a SOFR-linked revolving credit from five banks — currently under refinancing; for Persistent's own acquisition debt (yet to be raised), the assumed net cost was guided at 5-6% (period unspecified for timing of drawdown).
• Minimal customer overlap supports cross-sell — only 10 shared accounts out of 200+ Nagaro clients vs 201 Persistent $1M+ clients, with complementary SAP and AI consulting capabilities; a cooperation agreement allows early synergy before formal closure.

Marquee Wins Across Hyperscaler, Insurance, and Healthcare; Next Update in Q3

• A leading hyperscaler selected Persistent as preferred partner for its newly formed "forward deployed engineering" organization in Q2 FY 2026-2027, to scale legacy/mainframe modernization anchored in business outcomes rather than effort.
• A Fortune 500 US insurer chose Persistent as AI-led modernization partner for personal lines policy administration in Q2 FY 2026-2027, rebuilding a cloud-native platform using Persistent's proprietary AI accelerators.
• One of the largest US cancer research and treatment organizations selected Persistent in Q2 FY 2026-2027 to manage technology across its national network under a single delivery model.
• Six awards at the ISG Provider Lens Awards 2026 — plus "Growth Honor of the Year" (annual revenue more than USD 1 to 5 billion category) at Everest Group Elevate 2026 for the second consecutive year, a Business World Sustainable Worlds Award 2026, and honors across seven categories at the People Matters Infinity Awards India 2026.
• Estonia-based acquisition effective 1 July (Q2 FY 2026-2027) — part of a vendor consolidation exercise at a larger customer (beyond top 5); management cited a healthy pipeline and is hopeful of growing this account significantly.
• Next progress update on the ongoing process in three months (Q3 FY 2026-2027) — per management's closing remarks; no revised guidance or specific new risks were offered in the closing segment.