Persistent Systems Limited — Q3 FY26 earnings call

Call held 20 Jan 2026

Management summary

Persistent Systems Limited reported a strong Q3 FY26 with healthy revenue growth of 4.0% QoQ and 17.3% YoY in USD terms, reaching $422.5 million. The company secured robust deal wins with a TCV of $674.5 million and ACV of $501.9 million, driven by AI-led platforms and tool-driven pricing models which contributed 150 bps to EBIT margin. Despite a one-time 230 bps impact on EBIT margin from new labor codes, the company maintained a 14.4% EBIT margin and declared an interim dividend of ₹22 per share, demonstrating consistent performance and strategic focus on AI adoption and client mining.

Highlights

  • Healthy revenue growth of 4.0% quarter-on-quarter and 17.3% year-on-year in USD terms, reaching $422.5 million.

  • Constant currency growth of 4.1% quarter-on-quarter.

  • EBIT margin at 14.4%, with a 150 bps improvement from AI platform and tool-driven pricing models.

  • Total Contract Value (TCV) of $674.5 million, with new bookings at $369.1 million.

  • Annual Contract Value (ACV) of $501.9 million, with new bookings at $255.8 million.

  • Strong client growth: Top 5 customers up 25.6%, Top 10 up 28.3%, Top 100 up 20.1%.

  • Interim dividend of ₹22 per share declared.

  • S&P Global ESG score improved to 86 from 85.

  • Strong external recognition for AI initiatives (Gartner, ISG, CII AI Award).

Concerns

  • One-time impact of 230 bps on EBIT margin due to increased provisioning for gratuity and leave encashment from New Labor Codes.

  • Foreign exchange loss of ₹78.2 million due to mark-to-market losses on hedges.

  • Operating Cash Flow to PAT at 91% (down from 114.3% last quarter) due to collection spillover.

  • Billed DSO increased by 3 days and unbilled DSO increased by 3 days.

Key financials

  1. Revenue 422.5 Mn +17.3%YoY
  2. Revenue 37,782.1 Mn +23.4%YoY
  3. Constant Currency Revenue Growth 4.1% +4.1%QoQ
  4. EBIT Margin 14.4% -0.5%YoY
  5. EBIT 5,427.5 Mn +19.1%YoY
  6. PAT 4,394.5 Mn +17.8%YoY
  7. PAT Margin 11.6%
  8. EPS ₹28.2 +16%YoY
  9. Effective Tax Rate 22.2%
  10. Other Income (net of Finance cost) 300.6 Mn
  11. Foreign Exchange Loss 78.2 Mn
  12. Billed DSO 57 days
  13. Unbilled DSO 24 days
  14. Operating Cash Flow to PAT 91%
  15. Headcount 26,711
  16. Trailing Twelve Months Attrition 13.5%

What they filed

Q4 FY26: revenue up 24.2%, net profit up 49.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ1 FY25Q2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26
Revenue2,691 2,847 3,002 3,188 3,258 +21%3,493 +23%3,718 +24%3,958 +24%
EBITDA320 413 476 405 523 +63%661 +60%685 +44%598 +48%
Net profit248 286 326 281 374 +51%459 +60%388 +19%420 +49%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Geographic Performance (YoY USD Growth)
    18.6% North America Revenue Growth22% Europe Revenue Growth-2.5% India Revenue Growth37.9% Rest of the World Revenue Growth
  • Industry Segments (YoY Growth)
    29.3% BFSI Revenue Growth14.7% Software Hi-Tech and Emerging Industries Revenue Growth7.4% Healthcare, Life Sciences Revenue Growth

Order book

high confidence

Total value

$674.5 Mn

as of 2025-12-31 quantified

Inflow this quarter

$369.1 Mn

Composition

Mix 6 client types
  • Customers with annual revenues greater than USD 75 million 4 number 1.3%
  • Customers with USD 50 million plus annual revenue 4 number 1.3%
  • Customers in USD 20 million plus category 12 number 3.9%
  • Customers in USD 10 million plus category 28 number 9.2%
  • Customers in USD 5 million plus category 61 number 20.1%
  • Customers in USD 1 million plus category 195 number 64.1%

Share of order book by client type, derived from disclosed amounts

The Annual Contract Value (ACV) of bookings for the quarter is USD 501.9 million, with ACV from new bookings contributing USD 255.8 million. Revenue conversion on a quarterly basis is a function of ACV bookings and conversion from multi-year deals.

Source: Prepared remarks

Capital allocation

high confidence
  • Dividend ₹22/share (interim)
    I am pleased to share with you that the Board of Directors has declared an interim dividend of 22 per share on face value of 5 per share.
  • Liquidity Cash ₹29,046.5 Mn
    Total cash and investments stood at ₹29,046.5 million as on 31st December 2025.

Guidance & targets

Profitability

  • Effective Tax Rate Profitability · FY26 · High confidence 20%-24%
    ETR for FY26 will be in the range of 20%-24%.

    — Vinit Teredesai

Revenue

  • Revenue Aspiration Revenue · March 2027 · High confidence $2 billion
    I am also happy to share that we remain firmly on track, advancing confidently towards our aspiration of $2 billion by March 2027 and laying the foundation of $5 billion by March 2031.

    — Sandeep Kalra

  • Revenue Aspiration Revenue · March 2031 · High confidence $5 billion

    — Sandeep Kalra

What to watch in Q4 FY26

EBIT Margin (excluding one-time impact)

Next quarter (Q4 FY26)
Current 16.7% (Q3 FY26, excluding 230 bps labor code impact)
Target Stability or further improvement

Why it matters

To assess if the underlying margin strength from AI tools and operational efficiencies continues without the one-time labor code impact.

Excluding the one-time impact of labour code, our EBIT margin would have been 16.7%, a 40 basis point improvement over Q2 FY26.

Risks & concerns

  • New Labor Codes Provisioning

    medium

    One-time impact of 230 bps on EBIT margin due to increased provisioning for gratuity and leave encashment in Q3 FY26.

    Management acknowledged

  • Foreign Exchange Volatility

    low

    Foreign exchange loss of ₹78.2 million in Q3 FY26 due to mark-to-market losses on hedges.

    Management acknowledged

  • Collection Spillover and DSO Increase

    low

    Operating Cash Flow to PAT at 91% (down from 114.3%) and increased DSO due to collection spillover to January from the holiday season.

    Management acknowledged

Q&A highlights

7 direct
Demand Environment & Future Margin Tailwinds from AI Partial
As far as the future is concerned, we don't give forward looking guidance. I'll just pause it there.

Analyst sought clarity on future margin trajectory from AI tools, but management declined to provide specific forward guidance, indicating caution despite current benefits.

Asked by Bhavik Mehta

Nature of Software License Revenue Growth and Intangible Assets Direct
As a result of that, you're seeing the increment that is happening on the intangible assets. I think so it has, they are now at a pretty good amount of maturity level whereby the growth in these intangibles will not be at the same level as what you have seen in the past. The good part is we are also being able to link and generate revenue out of it, which sort of justifies the capitalization that we are seeing at this point of time.

Clarifies the components of software license revenue and explains the increasing intangible assets as investments in AI tools that are now generating revenue, providing insight into the company's R&D and monetization strategy.

Asked by Sandeep Shah

Sustainability of 150 bps Margin Improvement from AI Tools Direct
So, Nitin, first of all, this 150 basis points increment that you're seeing, it's not on account of one deal. So, there are multiple deals that we have won using the SASVA side of it, iAURA side of it, GenAl Hub side of it. Certain things my colleague, Jaideep, covered when he talked about the Al part.

Addresses a critical question about whether the significant AI-driven margin improvement was a one-time event or sustainable, with management confirming it's from multiple scaling deals and part of an ongoing strategy to monetize technology.

Asked by Nitin Padmanabhan

Impact of ESOP Allocation on Future Margins Direct
This is a reduction in cost that is happening in FY26. There will be a further reduction in cost that will happen in FY27.

Provides clarity on the financial impact of ESOPs, indicating a positive tailwind for margins in the current and upcoming fiscal years due to a reduction in associated costs.

Asked by Nitin Padmanabhan

Client Maturity and AI Implementation Beyond POCs Direct
It is about understanding what is the business issue that we're trying to solve for, what is the right tool to bring, whether it's our tool or a partnership, and as long as we can prove we are able to win the business.

Explains Persistent's client engagement model for AI, focusing on solving business problems with proven technology rather than just selling models, suggesting a more mature and outcome-oriented approach to AI adoption.

Asked by Abhishek Pathak

Hi-Tech Vertical Performance vs. Industry Trends Direct
So, our pitch is very, very different, very differentiated in the hi-tech space as compared to most of our competition.

Highlights Persistent's unique and differentiated value proposition in the hi-tech sector, focusing on core product development and managed services for PE-held companies, which helps explain its resilience compared to peers.

Asked by Abhishek Pathak

Accounting for AI-Driven Margin Expansion Direct
So, the commercial construct defines how we recognize the revenue. If there is a specific call out, the customer wants a license, it comes into it. If it is embedded as a part and parcel of our services, it happens over a period of time.

Provides crucial details on the revenue recognition mechanics for AI tools and licenses, explaining how the timing of margin benefits can vary based on the commercial terms of client engagements.

Asked by Vibhor Singhal

Productivity Benefits from Mainframe Modernization Direct
Using our platforms, we are able to get to 60 to 70% of reverse engineering of business logic, convert that to even an English document so that the business users can understand. And by doing this, we are able to get them off of legacy platforms, legacy technologies onto modern platforms, which are much more nimble, agile.

Quantifies the significant productivity benefits (60-70% in reverse engineering) achieved through their platforms in mainframe modernization, demonstrating tangible value for clients beyond just cost savings.

Asked by Ravi Menon

3 min read 7 chapters

Detailed narrative

Q3 FY26 Financial Performance Overview

Persistent Systems reported a healthy Q3 FY26 with USD revenue growing 4.0% QoQ and 17.3% YoY to $422.5 million, and INR revenue up 5.5% QoQ and 23.4% YoY to ₹37,782.1 million. Constant currency growth stood at 4.1% QoQ. EBIT margin was 14.4%, impacted by a one-time 230 bps provisioning for new labor codes, but would have been 16.7% otherwise, a 40 bps improvement QoQ. Profit After Tax grew 17.8% YoY to ₹4,394.5 million, translating to a PAT margin of 11.6%.

Robust Deal Wins and Client Mining

The company secured a Total Contract Value (TCV) of $674.5 million, with new bookings contributing $369.1 million. Annual Contract Value (ACV) was $501.9 million, including $255.8 million from new bookings. Persistent demonstrated strong client mining, with Top 5 customer revenue growing by 25.6% and Top 100 customers by 20.1%. Notable wins included a $100 million TCV deal with a Tier-I bank and a $50 million plus engagement in the pathology and laboratory automation domain.

AI-Driven Margin Expansion and Strategic Investments

AI platforms and tool-driven pricing models contributed a significant 150 basis points improvement to margins this quarter. Persistent is heavily investing in developing new AI tools like SASVA and iAURA, which are capitalized as intangible assets, and these investments are now generating revenue. The company aims to monetize its technology through upfront fees and productivity gains, reinvesting to maintain competitive differentiation rather than continuously pushing margins higher.

Geographic and Vertical Growth Drivers

North America and Europe showed strong year-on-year growth at 18.6% and 22.0% respectively, while India declined by 2.5%. BFSI vertical led industry segment growth at 29.3%, followed by Software Hi-Tech and Emerging Industries at 14.7%, and Healthcare, Life Sciences at 7.4%. Management noted strong demand in Healthcare for application and data modernization, and in Hi-Tech for AI in product development.

Operational Efficiencies and Talent Management

Headcount increased by 487 to 26,711, while trailing twelve months attrition improved to 13.5% from 13.8% in the previous quarter. Favorable currency movement, lower subcontractor costs, and higher utilization combined with pyramid rationalization contributed to margin tailwinds. The company also improved its S&P Global ESG score to 86, reflecting its commitment to sustainability.

Capital Allocation and Shareholder Returns

The Board declared an interim dividend of ₹22 per share, continuing a consistent dividend payout ratio. Total cash and investments stood at ₹29,046.5 million as of December 31, 2025. An earn-out credit of ₹129.8 million from a recent acquisition boosted other income. The cost impact from ESOP allocations is expected to reduce in FY26 and further in FY27, providing a future margin tailwind.

Long-term Vision and AI Leadership

Persistent reiterated its long-term aspirations of reaching $2 billion in annual revenue by March 2027 and $5 billion by March 2031. The company highlighted its leadership in AI, being recognized by Microsoft and awarded the prestigious CII AI Award. Internally, AssistX, a modular agentic AI platform, is transforming operations, with N(AI)vigateAssist reducing proposal prep time, PiAssist resolving 83% of HR queries, and ITAssist cutting incident resolution time by 70%. Externally, platforms like SASVA and iAURA are helping clients with engineering hyper-productivity and data readiness.

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