PERSISTENT - Persistent Systems Limited Share Price

Management Outlook:
Persistent Systems projects confidence in achieving its near-term aspiration of $2 billion annual revenue by FY27 and targets $5 billion by FY31. Strategic initiatives include scaling core verticals (Healthcare, BFSI, Software/Hi-Tech) into sub-verticals, doubling down on top 100 clients, expanding partnerships (hyperscalers, private equity), and leveraging AI-driven platform services. The focus remains on transitioning to outcome-based models, platform-led services, and inorganic capability acquisitions.

Key Points:

1. Financial Performance:

   • Q3 FY25 revenue grew 19.9% YoY to $360.2M (4.3% QoQ). EBIT margin improved 90 bps QoQ to 14.9%.
   • Order book: TCV at $594.1M (new bookings: $333.6M), ACV at $428.3M (new: $195.6M).

2. AI & Innovation:

   • Strengthened SASVAâ„¢ (AI platform) with autonomous agents for end-to-end task automation (e.g., bug-fixing workflows).
   • Filed 20+ AI patents (core AI, agentic AI, personalized AI). Partnerships with Microsoft, Google, AWS highlighted (e.g., ContractAssist, Pi-OmniKG).

3. Client Growth:

   • Healthcare vertical crossed $100M quarterly run rate. All verticals now exceed $100M quarterly revenue.
   • Top 5 clients grew 31.7% YoY; 189 clients with >$1M TTM revenue (+13 YoY).

4. Operational Metrics:

   • Utilization rose to 87.4% (from 84.8% in Q2). Headcount: 23,941 (+605 YoY).
   • Interim dividend: Rs.20/share declared.

5. Acquisitions & Partnerships:

   • Starfish (contact center modernization) and Arrka (data privacy) integrated into AI platforms.
   • Targeting scaled acquisitions in Europe to boost regional revenue (8-9% to 12-15%).

6. Margin Levers:

   • Focus on pricing, COLA clauses, SG&A optimization, and nonlinear revenue via AI adoption.

7. ESG Recognition:

   • Included in Dow Jones Sustainability World Index; near-term Net-Zero targets approved by SBTi.

Forward View: Management remains bullish on AI-driven growth, platform-led efficiency, and strategic expansions despite macro uncertainties.

Question 1:
"Firstly, one of your peers have highlighted that they have faced headwinds because of productivity benefit being asked by one of the hyperscaler clients... have you also seen any such asks from clients which could drive headwinds on revenues and margins? Secondly, utilization has gone up sharply... what level of utilization are you comfortable with, and how should we think about headcount additions?"
Answer: Persistent emphasized that its AI tools (e.g., SASVATM, iAURA) aim to deliver value rather than engage in a "race to the bottom." Utilization improved to 87.4%, with a comfortable band around 85%. Headcount additions reflect pipeline confidence, but long-term focus includes reducing dependency on linear headcount growth through platform-driven services.

Question 2:
"ACV and new business ACV growth rates on a YoY basis appear weaker (single-digit)... is this due to timing issues or expected? How should we think about margin improvement levers for FY26/27?"
Answer: Persistent attributed ACV growth dynamics to multi-year TCV deals (e.g., a $150M+ 7-year deal) layered into revenue over time, ensuring confidence in growth. Margin levers include pricing improvements, SG&A optimization, nonlinear revenue via AI, and operational scale. Exit margin run-rate progression supports medium-term 200"“300 bps improvement.

Question 3:
"Are you worried about Healthcare demand due to potential US administration changes? Are you seeing a tilt toward cost-takeout vs. discretionary spending?"
Answer: Persistent remains confident in partnering with customers through macro shifts, citing cost optimization and revenue enhancement opportunities. No significant near-term tilt toward discretionary spending was observed, but customer discussions on AI-driven efficiencies continue.

Question 4:
"How will autonomous AI (SASVATM) impact long-term headcount planning, pyramid structure, and onsite-offshore ratios?"
Answer: Persistent anticipates a gradual shift toward outcome-based models, reducing reliance on traditional headcount-led growth. Investments in IP and hyperscaler partnerships will drive productivity, with learning initiatives enabling workforce adaptation. Pyramid structures may evolve, but changes will unfold over years.

Question 5:
"Why is Q3 seasonally strong for bookings? Could budget finalization delays lead to Q4 bumps?"
Answer: Q3 aligns with calendar-year renewals for North American clients (80% of revenue). Budget delays may defer impacts to future quarters, but Persistent's backlog and execution focus ensure sustained growth irrespective of timing.

Question 6:
"Will pivoting to platform-driven services decouple revenue from headcount and accelerate margin expansion?"
Answer: Yes, but as a multi-year journey. Persistent's IP-led differentiation and nonlinear revenue models (e.g., AI-driven outcomes) will gradually reduce headcount dependency. Margin gains will follow scaled adoption, though near-term investments persist.

Question 7:
"Does the $2B FY27 revenue target include inorganic contributions?"
Answer: The target is primarily organic, backed by existing backlog and execution. Inorganic moves (e.g., Arrka, Starfish) focus on capability-building, not revenue accretion. Europe scaling remains a potential inorganic lever.

Question 8:
"What's the roadmap to the $5B FY31 target? Are there new opportunities like ERP refresh cycles?"
Answer: Sub-vertical specialization, deeper top-100 client mining, and private equity partnerships will drive growth. Persistent aims to leverage AI differentiation and hyperscaler alliances, avoiding reliance on "more of the same."

Question 9:
"Will earnout reversals extend beyond FY25?"
Answer: Earnout reversals are expected to conclude by FY25-end, with no spillover into FY26.