Rs 8,350 crore crash in Persistent shares explained: Why investors are worried about Nagarro deal

Nomura and several other brokerages remained cautious on Persistent Systems after the IT company's shares tumbled nearly 11% on Monday, erasing nearly Rs 8,353 crore from its market capitalisation following its announcement to acquire Germany-based Nagarro at an enterprise value of €1.27 billion (around Rs 13,667 crore).

Shares of Persistent Systems fell to a fresh 52-week low of Rs 4,312 apiece on the NSE. The stock is on track to record its worst single-day loss since October 2018.

Persistent Systems has already acquired a 21% stake in Nagarro through a share purchase agreement. It will now acquire the remaining stake by launching a voluntary public takeover offer for all remaining Nagarro shareholders, followed by a delisting from the German stock exchange.


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

While some brokerages highlighted that the acquisition would strengthen Persistent's presence in Europe, others pointed to the rich valuation and execution risks associated with the deal.

Nomura on Persistent Systems

Nomura believes the acquisition aligns with Persistent's objective of reaching $5 billion in revenue by FY31 while strengthening its presence in Europe. However, given the large size of the transaction (nearly 67% of Persistent's existing size), seamless execution will be critical to creating value for shareholders over the medium to long term.

"Interestingly, Persistent will keep the company as a separate entity for two years after the transaction closes, with Nagarro's existing management continuing to run the business. The announcement of a large deal in its core business ($650 million with ACV of $125 million+) provides visibility for continued growth momentum in FY27," the brokerage said.

Nomura maintained its 'Neutral' rating on Persistent Systems, with a target price of Rs 5,200 per share, implying an upside potential of more than 7% from the stock's previous closing price.

Equirus Capital on Persistent Systems

Equirus Capital noted that the transaction assigns a significant valuation premium to Nagarro's CMP, with the offer representing a 140% premium to Nagarro's June 25, 2026, closing price, implying that Nagarro's current investors are pessimistic about its growth profile.

The brokerage has a 'Reduce' rating on Persistent Systems with a target price of Rs 5,010 per share.

"We believe Persistent Systems' expensive valuations (currently trading at a PE of 33.5x FY27E / 27.3x FY28E / 23.0x FY29E on an organic basis) offer little margin for error, especially during periods of volatile macro conditions and increasing client demand for sharing AI-led productivity gains, which could be more pronounced in the SDLC domain, particularly in the technology segment," it said.

Also read: Nifty indices rejig goes live today! Which stocks will see biggest inflows and outflows?

Emkay on Persistent Systems
Emkay said the takeover creates a $2.9 billion AI-led digital engineering leader and strategically strengthens Persistent's European footprint, enhances its AI-led engineering capabilities, and creates a more balanced revenue mix across clients, verticals, geographies and offerings.

"The acquisition aligns with management's objective of scaling its European presence through large-scale M&A, although we view the valuation as slightly stretched and expect near-term reported EPS dilution," Emkay said.

The brokerage added that it expects the stock to face a near-term overhang due to execution risks associated with a transaction of this scale, EPS dilution concerns and an elevated risk profile arising from higher balance-sheet leverage.

Emkay maintained its 'Add' rating on the stock with a target price of Rs 5,200 per share.

ICICI Securities on Persistent Systems

ICICI Securities upgraded its rating on Persistent Systems to 'Hold' from 'Reduce' and raised its target price to Rs 4,930 per share, implying an upside potential of nearly 2% from the stock's previous closing price.

While the strategic rationale behind the acquisition is sound, the price paid and leverage assumed place significant emphasis on post-merger execution, the brokerage said.

"Turning around Nagarro's revenue growth profile in a challenging demand environment with multiple headwinds, including AI-driven pricing pressure, a shift in spending toward AI-native players and GCCs, and a weak macro environment, remains a key monitorable. Persistent plans to bring the same execution rigour to Nagarro as it has demonstrated in its organic business," it added.

JM Financial on Persistent Systems

JM Financial maintained its 'Add' rating on Persistent Systems but lowered its target price to Rs 5,095 per share, implying an upside potential of more than 5% from the stock's previous closing price.

"Investors are likely to focus on the growth rate of the combined entity (Persistent + Nagarro). Any moderation is likely to weigh on valuations. Persistent is trading at a 30% premium to Coforge," it said.

Motilal Oswal on Persistent Systems

Motilal Oswal Financial Services said the acquisition addresses Persistent's long-standing objective of building scale in Europe, broadening its vertical mix and creating cross-selling opportunities with limited customer overlap.

"The acquisition also appears priced at 9.1x EV/EBITDA, which we believe is a reasonable valuation for a business of Nagarro's size. However, it remains to be seen how much value Persistent can extract through integration and cross-selling. We remain relatively more cautious on the addition of ERP, a more mature and competitive service line than Persistent's core digital engineering business.

While management expects margins to remain broadly stable, we would await greater clarity on integration, cost synergies and the path toward margin convergence, given Nagarro's lower profitability. Execution over the next few quarters will remain the key monitorable," the brokerage said.

Motilal Oswal has a 'Buy' rating on Persistent Systems with a target price of Rs 6,200 per share, implying an upside potential of more than 28% from the stock's previous closing price.

Also read: PFC-REC merger explained | Swap ratio, rationale, other key details as merger set to create Rs 11 lakh cr power financing giant

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