Persistent Systems (PSYS IN) – Q1FY27 Result Update – Strong Q1, Large Deals Support FY27 Growth – Downgrade to ‘Accumulate’

PSYS reported revenue growth of 4.1% QoQ CC (vs. our estimate of 3.8%), aided by healthy growth within Hi-Tech vertical and ramp-up of large deals. The company also reported record quarterly bookings (TCV of USD1.15bn), including a USD650mn+ multi-year strategic engagement, providing confidence in sustaining strong growth over the coming quarters despite sequential weakness in the Top 6–10 and 11–20 client cohorts, attributed to project completion and closure activities. Management expects the momentum within Hi-Tech vertical to continue on the back of large deal (USD650m) ramp up, while Healthcare vertical is expected to recover over the coming quarters following a weak Q1 performance. EBIT margin of 16.0% missed our estimate of 16.5%, primarily due to proactive hiring ahead of anticipated deal ramp-ups (60bps utilization impact) and continued investments in AI capabilities. Management indicated that the annual wage revision, effective from Q2FY27, will pose a 180–200bps headwind to margins. However, the impact would largely be mitigated through operating leverage, improving utilization and offshoring, We therefore maintain our FY27E/FY28E CC revenue growth estimates of 19.9%/18.1% and EBIT margin estimates of 16.3%/16.4%. The underlying fundamentals remain strong while the valuations have stretched over the past few sessions. Hence, downgrading PSYS to ACCUMULATE (BUY earlier). We assign 32x (30x earlier) to FY28E EPS to arrive at a TP of INR 5,860.