Shares of Persistent Systems crash 10% today: What's the reason?
What's the story
Persistent Systems' shares plummeted by 10% to ₹4,353.35 today, following the company's announcement of its planned acquisition of German digital engineering firm Nagarro SE. The deal, valued at €1.27 billion (about $1.4 billion), was met with mixed reactions from brokerages despite its strategic rationale and expected earnings accretion. The acquisition will be done through a voluntary public takeover offer by Persistent's subsidiary Galaxy Germany Holding to acquire all outstanding shares of Nagarro SE at €81 per share in cash.
Market reaction
One-year loss in stock price stands at 27.7%
The decline has taken the stock's one-year loss to 27.7%, compared with a 5.6% decline in the Nifty 50 index. The fall in share price is attributed to investor concerns over the size, valuation, and integration implications of the proposed acquisition deal for Nagarro SE.
Analyst opinions
Citi and Nomura express mixed views over acquisition
Brokerages have expressed mixed views on the acquisition. Citi maintained a 'Sell' rating on Persistent with a target price of ₹4,090, implying about 15% downside from the previous close. The brokerage said while the deal strengthens Persistent's European presence and scale across key verticals, it is expensive given Nagarro's historical growth trajectory and current global valuations. Nomura retained its 'Neutral' rating with a target price of ₹5,200 for Persistent Systems shares post-acquisition announcement.
Positive outlook
CLSA maintains 'High conviction outperform' rating for Persistent Systems
CLSA maintained its 'High Conviction Outperform' rating and target price of ₹6,520 for Persistent Systems shares after the acquisition announcement. The brokerage said the deal is valued at 1.2 times EV/sales and 9.6 times EV/EBITDA, adding that although Persistent is paying a 140% premium, Nagarro's growth has trailed Persistent's organic growth. CLSA expects the acquisition to deliver around 6% EPS accretion despite initial market reactions to the deal.