Persistent Systems shares fell 11% on Monday, touching a two-year low after the company announced its $1.3 billion acquisition of Germany-based IT services firm Nagarro over the weekend.
The stock closed 11.3% lower at Rs 4,292, its lowest level since June 2024.
The deal is the biggest acquisition by Persistent since its listing in 2010. The company expects the acquisition to make it India's seventh-largest IT services company, with combined annual revenue of about $2.9 billion.
Following the announcement, at least four brokerages raised concerns about Nagarro's growth, profitability and the challenges of integrating the business.
Persistent reported revenue of $1.65 billion in 2025-26, up 17% year-on-year. Nagarro reported revenue of $999 million in calendar year 2025, with growth of 2.8%. Nagarro also reported an operating margin of 10.9% in 2025, compared with Persistent's 15.6%.
"While valuations on an EV/sales (enterprise value-to-sales) basis seem reasonable, we expect the acquisition to dilute the combined entity's revenue growth and profitability profile in the near term," said Sameer Pardikar, IT services analyst at Elara Capital.
Persistent Chief Executive Sandeep Kalra said the combined company's operating margins would not be lower than Persistent's current margins as it would pursue "cost synergies" and reinvest cash into new growth areas.
Brokerages also pointed to weak demand conditions and the risks of integrating a large business in Europe.
"Turning around Nagarro's revenue growth profile in a challenging demand environment with multiple headwinds (AI deflation, shift of spends to AI native players and global capability centres, weak macros) remains a monitorable," said ICICI Securities analysts Ruchi Mukhija, Aditi Patil and Seema Nayak.
Kalra said Nagarro's focus on going private last year had affected its growth.
"From an uber perspective, if you look at it, they have, on a constant currency basis, grown more than 5% even in these environments. And keep in mind, if I may say so, they were distracted for some time when they were taking a transaction to take Nagarro private in the last year," he said.
Nuvama Institutional Equities said integrating a business of this size in Europe carries several risks and could lower Persistent's growth profile. Motilal Oswal said Persistent's entry into the enterprise resource planning (ERP) market would require strong execution as the segment is larger and more competitive than its digital engineering and cloud services business.
Persistent said the acquisition would help reduce its dependence on the US market, expand its presence in Europe and support its target of reaching $5 billion in revenue by FY31 through organic and inorganic growth.