Nagarro deal jitters drag Persistent’s shares to a two-year low

Shares of Persistent Systems Ltd fell 8% to a two-year low on Monday after the Pune-based IT services firm announced its biggest acquisition since its IPO in 2010 over the weekend.

At least four brokerage firms have expressed concerns about Persistent’s $1.3 billion acquisition of Nagarro, citing the German IT firm’s sluggish growth outlook and intense competition in the enterprise resource planning (ERP) services market.

The company on Saturday announced the Indian IT industry’s second-largest acquisition, expecting the deal to surpass Mphasis Ltd and Coforge Ltd to become India’s seventh-largest IT services company with total annual revenue of around $2.9 billion.

Persistent finished 2025-26 with $1.65 billion in revenue, up 17% year-on-year. In comparison, Nagarro reported revenue of $999 million in 2025, up just 2.8%. While Indian IT services firms follow the April-March financial calendar, Nagarro follows the January-December financial calendar.

The sharp difference in growth rates has become a cause for concern. Its shares opened down 8.4% on Monday, even though Persistent held an investor call to answer questions on Sunday. ₹4,448.15, the lowest level since June 2024.

Persistent stock was down 10% at the time of publication compared to a 1% decline in Nifty IT.

“While valuations look reasonable on an EV/sales (enterprise value-sales) basis, we expect the acquisition to weaken the revenue growth and profitability profile of the combined entity in the near term,” Elara Capital IT services analyst Sameer Pardikar said in a June 28 note.

A risky bet

Nagarro’s profitability did not please investors either. In 2025, Nagarro reported an operating margin of 10.9% compared to Persistent’s 15.6%, up 90 basis points from the previous year.

Moreover, Persistent’s managing director Sandeep Kalra claimed that the combined entity’s operating margins will not be lower than Persistent’s overall margins as the company will pursue “cost synergies” and reinvest its cash into new growth areas.

However, a second brokerage firm noted that the challenging demand environment is a significant hurdle for the company.

“Nagarro’s revenue growth profile remains tractable to reverse in a challenging demand environment with multiple headwinds (AI deflation, shifting of spend to AI local players and global talent hubs, weak macros),” ICICI Securities analysts Ruchi Mukhija, Aditi Patil and Seema Nayak said in a June 29 note.

Nagarro’s slow revenue growth is partly due to management’s focus on privatizing it in 2025, which Persistent management describes as a “distraction.”

“From a superior perspective, even in those environments on a constant currency basis, they grew more than 5%. And remember, they were distracted for a while, so to speak, last year when they were making a transaction to take Nagarro private,” Kalra said.

Integrating an asset of this size into a relatively challenging geography like Europe is fraught with many risks, Nuvama Institutional Equities analysts Vibhor Singhal and Yukti Khemani said in a June 28 note.

“So far, Persistent has enjoyed a significant valuation premium thanks to its ‘risk-free’, ‘industry-leading’ growth profile. With the acquisition of Nagarro, both are likely to come under a cloud, especially with the already rich valuation,” the note read.

Nuvama analysts added that the acquisition would likely reduce Persistent’s growth profile.

Inorganic growth does not sell

A fourth broker emphasized that entering the ERP space would not benefit the company.

“While Persistent has historically differentiated itself through digital engineering and cloud-based services, ERP is a larger, relatively mature and more competitive market. We believe implementation and differentiation in this segment will be key watchdogs in the medium term,” Motilal Oswal analysts Abhishek Pathak and Keval Bhagat said in a June 28 note.

ERP is a single software system that connects various business functions in operating offices. These functions include paying staff, managing inventory, taking orders, managing suppliers, and handling human relations.

Nagarro strengthens Persistent’s capabilities across ERP (specifically systems, applications and products, or SAP), consulting and customer experience (CX), while providing a stronger presence in manufacturing-focused engineering.

This reflects broader unease among shareholders about big-bang buyouts. A few days after Coforge announced India IT’s largest acquisition on December 26, its shares fell as much as 2.4% after an initial rise.

Coforge aims to generate approximately $2.5 billion in revenue for the full year by purchasing US-based data analytics company Encora for $2.39 billion.

Persistent stock was down 10% at the time of publication compared to a 1% decline in Nifty IT.