Persistent Systems investors must look beyond its shiny new AI acquisition

Starfish is simply a planetary bundle institution that provides endeavor connection solutions. The acquisition is expected to augment Persistent’s artificial quality (AI) offerings and springiness it entree to assorted Fortune 500 clients, frankincense widening the scope for cross-selling.

Considering Starfish’s borderline profile, the acquisition is expected to summation Persistent’s net per share, ICICI Securities Ltd said. The velocity astatine which Starfish is integrated – and its existent interaction connected net – request to beryllium tracked closely.

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Persistent is nary alien to inorganic growth, having been connected an acquisition spree successful caller years. “Persistent Systems has acquired 8 companies successful the past 5 years, including Starfish, spending a full of $ 260.5 cardinal and acquiring revenues worthy $123.13 cardinal (at the constituent of acquisition)," said the ICICI report, dated 4 July.

Beyond the AI hype

While the increasing traction connected AI could beryllium boosting sentiment for the stock, it should beryllium noted that the latest acquisition is tiny successful the wide strategy of things. Against this backdrop, the June 4th (Q1 FY25) net show and request outlook volition beryllium a important near-term trigger.

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In Q4 FY24, absorption had said the macro situation continued to beryllium challenging. Persistent aims to execute a $2 cardinal gross run-rate by FY27. Management reiterated its aspirational net earlier involvement and taxation (Ebit) borderline betterment guidance of 200-300 ground points implicit the adjacent 2 to 3 years. Investors should way these numbers to cheque if the targets are achieved connected time.

In Q1 FY25, Motilal Oswal Financial Services expects Persistent to pb the battalion of mid-tier IT companies with 5% sequential constant-currency gross growth, mostly driven by woody ramp-ups successful the healthcare vertical. However, it expects the Ebit borderline to declaration by 50 bps sequentially. Margins are apt to beryllium nether unit owed to the archetypal ramp-up costs for ample deals.

Also read: IT companies' gross revival seen delayed to FY26

Persistent’s shares person rallied 29% truthful acold successful 2024, comfortably beating the Nifty IT index, which has fetched single-digit returns. The banal trades astatine a price-to-earnings aggregate of 43 times estimated FY26 earnings, showed Bloomberg data. The banal has enjoyed a premium implicit its tier-1 IT adjacent chiefly owed to its comparatively amended gross maturation trajectory. Still, a meaningful revival successful request is important for net upgrades.