Persistent Systems shares slide 10% after Nagarro deal; Elara retains 'Sell' on growth, margin worries

Persistent Systems shares fell 10% to Rs 4,327 in Monday’s trading session after announcing a Euro 1.27 billion all-cash acquisition of Germany’s Nagarro. While the deal boosts its European expansion plans, Elara Securities retained a ‘Sell’ rating, citing near-term growth and margin concerns, with a Rs 4,280 target.

While the acquisition marks Persistent's biggest strategic bet to expand its European footprint and accelerate its long-term revenue ambitions, analysts at Elara Securities believe the transaction could weigh on the company's growth and profitability in the near term. The brokerage has maintained its 'Sell' rating on the stock with an unchanged target price of Rs 4,280.

Persistent has already secured a 21% stake in Nagarro, with the German firm's largest shareholder agreeing to tender its entire holding under a binding agreement. The company expects to cross the minimum acceptance threshold of 50% plus one share required to complete the takeover.


The acquisition will be financed through a EUR 1.4-billion committed bridge loan from Barclays, with the deal valued at around 1.2x CY26 estimated EV/Sales.

The acquisition is aimed at reducing Persistent's heavy dependence on the US market, which currently contributes nearly 80% of its revenue, while strengthening its presence across Europe. It also supports the company's target of reaching $5 billion in revenue by FY31 through a mix of organic and inorganic growth.

Nagarro will also give Persistent access to new industry verticals, including Retail, Automotive, Energy and Travel, complementing its existing strengths in Banking, Financial Services, Healthcare and Technology.

The combined entity is expected to generate nearly $2.9 billion in revenue, employ over 46,000 professionals across 40+ countries, and create a larger AI-led digital engineering platform.

Premium acquisition raises concerns

Persistent has offered EUR 81 per Nagarro share, representing a premium of around 140% to the undisturbed closing price before the announcement and nearly 94% above the three-month average trading price.

Elara believes the premium appears steep, particularly given Nagarro's relatively weaker financial performance. Over the past three years, Nagarro delivered a 5% revenue CAGR, significantly below Persistent's 18% dollar revenue CAGR. The German company also lags Persistent on profitability and operating margins.

Although the valuation appears reasonable on an EV/Sales basis, Elara expects the acquisition to dilute the combined revenue growth and margin profile over the near term, prompting it to reiterate its 'Sell' recommendation with a target price of Rs 4,280.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)