Persistent eyes $5 billion annual revenue by 2031 with mega Nagarro buyout

Persistent Systems Ltd aims to achieve its long-standing European ambitions and hit a $5 billion revenue target by March 2031 through its biggest acquisition yet, German digital engineering firm Nagarro. The deal is expected to move the company up two positions to become India’s seventh-largest IT services company, with total revenue of approximately $2.9 billion.

During an analyst call Sunday, company management outlined the strategic rationale behind the megadeal and answered analysts’ questions about debt repayment.

“They (Nagarro) are an important implementation partner for SAP, but our ERP (enterprise resource planning) advancement is not always at scale, so these types of additions are quite important for us,” Sandeep Kalra, CEO of Persistent Systems, said during the call.

He added that Nagarro’s product engineering capabilities for SAP and partnership with OpenAI are significant additions to Persistent’s portfolio. IT services firms typically do not disclose specific revenues from software deployment or individual AI partnerships. Kalra also noted that Nagarro is among the elite accredited OpenAI vendors and has an expert engineering team dedicated to implementing its technologies.

Nagarro’s slow growth

The analyst call comes a day after the company proposed a $1.3 billion acquisition of Nagarro, in which Persistent Systems would pay €81 per share to acquire all of Nagarro SE’s equity capital. The deal is expected to close in March 2027, after which the combined entity will operate as the Persistent-Nagarro Group.

The Pune company closed FY26 with revenues of $1.65 billion, up 17% from the previous year. Nagarro’s growth has been slower. It closed last year with $999 million, an increase of 2.8% on an annual basis. Nagarro follows the January-December financial year, unlike India IT companies follow the months of April-March.

Addressing concerns about Nagarro’s slow growth, Kalra explained that the figures do not reflect the company’s true potential. He noted that from a big picture perspective, Nagarro grew by more than 5% on a constant currency basis despite a challenging market. Kalra attributed the latest slowdown to temporary civil unrest. “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.

Nagarro’s profitability also lags behind Persistent’s. Last year, Nagarro reported an operating margin of 10.9%, compared to Persistent’s operating margin of 15.6%, which was up 90 basis points from the prior year.

Management said the combined entity’s operating margins would be no lower than Persistent’s overall margins as the company would engage in cost synergies and reinvest its cash into new growth areas. Management intends to eliminate tail accounts once the acquisition takes effect. The combined entity is expected to gain $750 million each from banks and telecom companies. The company expects 22% of its business to come from Europe, up from the current 10%.

Obstacles to purchasing

But completion Purchasing presents significant challenges. First, the plan relies on Persistent successfully acquiring at least 50% of Nagarro’s shares through an upcoming open offer and obtaining the necessary regulatory approvals. Second, the company needs to successfully refinance its $1.6 billion transaction loan. It has agreed to buy 21% of the company’s shares from Nagarro’s largest shareholder and is making a public offer to all other Nagarro shareholders to buy their shares for €81, more than double the current share price.

Responding to an analyst’s question during the call, Persistent Systems finance chief Vinit Teredesai explained that there is a critical immediate factor in determining the exact acceptance rate of the open offer, which will determine the final amount of debt the company will have to take on.

Persistent is not paying the full share repurchase amount out of its own pocket. It is expected to borrow up to 1.4 billion euros ($1.6 billion) from Barclays, which must be repaid within 18 months. This debt facility is larger than the $1.3 billion equity purchase price because, as management has stated, the additional funds will be used to clean up and refinance Nagarro’s existing debt. The rest is expected to be repaid through companies.

“The good thing is that both Persistent and Nagarro are in good shape in terms of cash generation. So our goal is basically to ensure that some of this money and some of these loans are repaid through cash generation over a period of time,” Teredesai added.

Management stated that the deal received significant interest from private equity firms in the last 24 hours. Persistent has announced that it does not intend to launch a qualified institutional placement (QIP) to raise fresh capital from major financial institutions.

“We are not looking to dilute our beef at this point. We may look at whether there is a benefit to deleveraging by having private equity or other participation at the asset level. These options are open,” Kalra said, adding that no decision has been made yet.

At least one analyst said the company could refinance its debt. “Both these companies are generating good amount of cash. They can repay their debt through internal accruals and cash generation, but the short-term loan will be refinanced,” said Amit Chandra, vice president of HDFC Securities. He added that there is huge room for margin expansion in Europe as large numbers of employees may be moved away from customer locations.