Persistent Systems Ltd
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Q1-2026 Earnings Call
AI Summary
Earnings Call on Jul 23, 2025
Strong Revenue Growth: Persistent Systems reported Q1 FY'26 revenue of $389.7 million, up 3.9% sequentially and 18.8% year-on-year, marking its 21st consecutive quarter of growth.
Margins Stable: EBIT margin stood at 15.5%, up 150 bps YoY but down 10 bps QoQ, with margin improvement supported by lower ESOP costs despite headwinds from currency and delayed ramp-ups.
Healthy Order Book: Total contract value for the quarter was $520.8 million, with new bookings TCV at $337 million; management cited a robust pipeline but slower decision-making due to macro uncertainties.
Vertical Performance: BFSI led growth with 30.7% YoY increase, while Healthcare & Life Sciences saw a 2.1% QoQ decline due to planned onshore-to-offshore transitions, but is expected to return to growth.
AI Investments: Continued AI-led platform innovation, notably the SASVA 3.0 launch, is driving productivity gains and positioning the company for new opportunities.
Guidance Maintained: Management remains confident in margin improvement targets and reiterated the goal of reaching $2 billion revenue by FY'27, balancing organic growth with selective acquisitions.
The company delivered strong revenue growth, reporting $389.7 million for Q1 FY'26, which is 3.9% higher quarter-on-quarter and 18.8% higher year-on-year. This marks their 21st consecutive quarter of sequential growth, with management emphasizing broad-based contributions across client segments and geographies.
EBIT margin improved to 15.5%, up 150 bps year-on-year but down 10 bps sequentially. Margin tailwinds included lower ESOP costs, while currency headwinds, higher amortization, and project transitions acted as drags. Management expects margins to continue improving over time, targeting a 200–300 bps lift by FY'27 and maintaining expense discipline, including postponing wage hikes by a quarter.
TCV for the quarter reached $520.8 million, with $337 million from new bookings. Management described the order book and pipeline as healthy, but noted that customer decision-making has slowed due to macroeconomic uncertainties, leading to slightly lower book-to-bill ratios. Larger deals remain in the pipeline, and growth confidence remains intact.
BFSI was the strongest vertical, growing 30.7% year-on-year, followed by Software, Hi-Tech & Emerging Industries at 14.1%, and Healthcare & Life Sciences at 12.4%. The Healthcare vertical saw a 2.1% sequential decline due to planned transitions from onshore to offshore work, but management expects all verticals—including Healthcare—to grow over the year.
Persistent continued to invest in its AI-led strategy, launching SASVA 3.0 to enhance development productivity and support complex client needs, especially in regulated industries. The platform is yielding measurable productivity improvements, influencing deal wins, and helping unlock new client opportunities without leading to revenue deflation.
Headcount rose to 25,340, up 746 QoQ and 1,821 YoY. Trailing twelve-month attrition increased to 13.9%, but remains within the company’s acceptable range. Utilization remains high, with management confident in maintaining operational efficiency. Wage hikes have been delayed as a precaution in a volatile macro environment.
Management highlighted macroeconomic and geopolitical uncertainties, such as global tariff changes and slower client decision-making, as factors affecting the pace of growth and order conversion. While the environment remains cautious, management is optimistic that improvement in external conditions will benefit both the company and the sector overall.
Persistent reiterated its aspirational goal of reaching $2 billion in revenue by FY'27, requiring a 19–20% CAGR. The strategy involves a mix of organic growth and selective, mainly capability-led acquisitions, with a focus on profitable, sustainable expansion rather than growth at any cost.
Ladies and gentlemen, good day, and welcome to Persistent Systems Earnings Conference Call for the First Quarter of FY '26 ended June 30, 2025.
We have with us on the call today Dr. Anand Deshpande, Chairman and Managing Director; Mr. Sandeep Kalra, Executive Director and Chief Executive Officer; Mr. Vinit Teredesai, Executive Director and Chief Financial Officer; and Mr. Saurabh Dwivedi, Vice President, Finance and Strategy.
[Operator Instructions] Please note, this conference is being recorded.
I now hand over the conference to Mr. Saurabh Dwivedi. Thank you, and over to you, sir.
Thank you, Vandit. A very good day, good afternoon, and good evening to everyone on this call. Let me quickly outline the agenda for today's call. Sandeep will begin with an overview of our results and commentary on business. Vinit will take you through the financial details and key operational metrics for this quarter. I will then provide an overview of our key deal wins and awards and recognitions for this quarter. Sandeep will come back for a quick summary of the prepared remarks, post which we will open the conference for questions.
Let me also remind you that as part of our prepared remarks and during Q&A, we may make certain statements which are forward-looking and may involve significant uncertainty. Persistent does not take any responsibility to update such forward-looking statements and your discretion is warranted while making any investment decisions.
With this, let me hand over to Sandeep for his prepared remarks.
Thanks, Saurabh. Good morning, good evening to everyone on this call. I hope all of you are doing well.
Let me now start with a quick financial summary. For Q1 FY 2026, we delivered a revenue of USD 389.7 million, a heavy growth of 3.9% quarter-on-quarter and 18.8% year-on-year.
In rupee terms, growth for the quarter came in at 2.8% quarter-on-quarter and 21.8% year-on-year.
In constant currency terms, this translates into 3.3% quarter-on-quarter. This marks our 21st sequential quarter of growth.
The EBIT margin for the quarter came in at 15.5%. This translates into an EBIT growth of 2.5% quarter-on-quarter and 34.8% year-on-year in absolute terms, despite unfavorable currency movement in this quarter.
Profit after tax for the quarter came in at 12.7%, a growth of 7.4% quarter-on-quarter and 38.7% year-on-year in absolute terms. Vinit will provide a detailed color on the financials and margin movement later in this call.
Coming to the order book for the quarter. The total contract value for the quarter stood at USD 520.8 million, with TCV of new bookings coming in at USD 337 million. Annual contract value of this TCV is USD 385.3 million, out of which the ACV from new bookings contributed USD 211.8 million.
As highlighted in our earlier calls, our revenue conversion on a quarterly basis is a function of ACV bookings done in previous quarters as well as the conversion from multiyear deals booked in previous years, which are included in our TCV bookings that we announced on a quarterly basis.
Now let me give you some color on our client movement across various reported categories. This quarter, we witnessed healthy year-on-year growth in U.S. dollar terms among our various client buckets with the top 5 customers' revenue growing by 22.8%, top 10 by 20.2%, top 20 by 23.1%, top 50 by 22.7% and top 100 by 22.4%. As you would notice, there's a secular increase in revenue across all categories in our top 100 accounts.
Coming to the year-on-year movement of customers across various reported buckets in trailing 12 months revenue terms. Customers with greater than $75 million revenue increased from 3 to 4 on a year-on-year basis. Customers with $50 million plus remained at 4. Customers in the $20 million-plus category increased from 10 to 12 and the $10 million-plus category increased from 19 to 22. Customers in $5 million-plus category saw a significant increase from 41 to 56 over the last 1 year. Customers in $1 million-plus category increased from 178 to 190.
The healthy growth in various client categories is reflective of the trust our clients put in us and our ability to build stronger, scalable relationships with them over a period of time.
Coming to the performance across geographies. In terms of year-on-year growth this quarter in USD terms, North America grew by 17.4%, Europe by 37.5%, India by 18.3%, Rest of the World declined by 1.7%.
Now let me give you this quarter's performance from an industry segment perspective. This quarter's growth was led by BFSI vertical, followed by Software, Hi-Tech and Emerging Industries, and Healthcare & Life Sciences, which grew 30.7%, 14.1% and 12.4% respectively on a year-on-year basis.
You would have noticed that our Healthcare & Life Sciences vertical declined by 2.1% quarter-on-quarter for Q1. This decline was majorly on account of revenue impact due to the planned transition of effort from on-site to offshore in some of the larger customers.
Coming to a couple of important organizational updates. Yogesh Patgaonkar, our Chief People Officer, will retire from his role effective July 31, 2025. We extend our deep appreciation to him for his invaluable contributions in shaping and advancing our talent agenda during the pivotal phase of our scaling.
Rajiv Naithani, who joined us in February 2025, will assume the role of Chief People Officer effective August 1, 2025, as a part of a planned succession. Rajiv will drive talent transformation, harnessing AI-driven intelligence and people-first practices to build a high-performance, future-ready workforce for us.
We also recently welcomed Shimona Chadha, as our new Chief Marketing Officer. She will be driving our global marketing strategy, strengthening brand positioning and enabling business growth through integrated marketing initiatives. Shimona will be based out of our New Jersey office in the U.S.
Coming to the celebration of our 15th anniversary of our IPO. As you would know, Persistent went to IPO in March 2010 on the National Stock Exchange, and we just completed 15 years of our being in the public markets. As a part of this important milestone in our company's journey, last quarter, we organized multiple customer events, including one at the iconic NASDAQ Tower and another one in the Silicon Valley.
In continuation to these events this quarter, we are proud to be ringing the closing bell at the National Stock Exchange tomorrow, that is July 24. This occasion is a testament to the hard work, commitment and loyalty of our long-standing team members, and we are deeply honored to share this celebration with them.
Coming to the updates on our AI progress. As articulated previously, Persistent is pivoting to an AI-led platform-driven strategy structured primarily around two core areas.
The first one being AI for Technology, wherein we are focusing on enhancing engineering productivity and modernizing tech stacks to deliver faster time to market and competitive differentiation for enterprise software companies as well as enterprise IT or technology arms.
AI for Business, focusing on enabling enterprises to become AI ready and adopting agentic AI, thereafter to reimagine business processes, customer experiences and operational workflows.
Let me first give you a little color on AI for Technology. In the quarter gone by, we launched SASVA 3.0, a transformative upgrade to our generative deterministic AI-powered digital engineering platform, SASVA.
In the new release, this streamlines the software development life cycle, right from product definition to coding, release management and support, thereby defining and delivering significant productivity gains.
Since enterprises are able to leverage SASVA in an on-premise model, they can leverage their enterprise data to train and customize the platform for building their enterprise applications and business use cases in a seamless and secured manner. This is even more relevant to and important in the context of highly regulated industries such as Banking, Financial Services and Healthcare & Life Sciences.
SASVA is built using multiple custom-language models and can function using a limited number of GPUs, thereby containing the cost involved in scaling enterprise adoption as compared to hosted markets. The innovation in SASVA are powered and backed by 55-plus patents across data intelligence, AI infrastructure, productivity, autonomous agents and security, up from 35 in Q4 FY '25. As a fun fact, I would like to call out that SASVA 3.0 was built leveraging SASVA itself, demonstrating itself improving productivity progress.
We are seeing good traction with our customer base for engineering productivity across verticals, driving significant improvements in tech debt remediation and software release frequency. To give you an example of AI for tech, for a large capital market software provider, we rebuild their core risk management platform in less than 6 months using SASVA's AI-assisted assessment, planning and implementation versus traditional methods that would have taken us more than 18 months. This resulted in accelerated tech debt remediation on one hand and a faster go-to-market leading to revenue acceleration for our customers on the other hand.
Coming to AI for Business. In our AI for Business focus, we are working on two pivots. Number one, getting enterprises ready for broad-based AI adoption; and number two, developing Agentic AI capabilities for specific use cases across our industry verticals. As you would know, large enterprises typically grow over a period of time with a combination of organic growth as well as acquisitions, and this leads to a number of disparate systems that leverage legacy technologies, and may not communicate well with each other.
As a first step towards an enterprise-wide AI adoption, we've been working with a multitude of Fortune 1000 customers on modernizing their data architecture as well as building custom platforms to address their business needs, leveraging platforms and technologies from our hyperscaler partners as well as other technology companies such as Databricks and Snowflake in addition to our own IPs.
To give you an example of some of these industries specific Agentic solutions, looking at the Financial Services segment, we have built an underwriter agent based on Salesforce Agentforce platform for loan origination. This agent automates first stage of document verification and leverages a reasoning engine to process the documentation to take decisions autonomously and fast tracks the loan document verification as well as significantly enhancing human underwriters work efficiencies.
Similarly, in the Healthcare & Life Sciences space, we have leveraged the Google Agentic platforms for building an agent that we're calling Symetra agent. This agent accelerates scientific discovery in complementing our Pi-OmniKG, which is a knowledge graph-based solution.
Enabling our foray into AI for Tech and AI for Business are our investments in building capabilities around a digital trust layer in all our platforms, encompassing the tenants of responsible AI, security and governance. Our acquisition of Arrka last year has strengthened its capability and is tightly integrated across all our platforms and our SASVA, iAURA and GenAI.
With this, in summary, we are happy with the progress that we are making in our AI journey, and we will continue to build on the momentum that we've already established.
Let me now invite Vinit to share with you the financial details for the quarter. Vinit, over to you.
Thank you, Sandeep. Good evening, and good day to all. Thank you for taking the time out today to join us today. Let me now take you through the financial highlights for the quarter gone by.
Q1 FY '26 revenue stood at USD 389.7 million, registering a year-on-year growth of 18.8%. In rupee terms, it translates into INR 33,335.9 million, a growth of 21.8% year-on-year.
EBIT margin for Q1 FY '26 came in at 15.5%. 150 basis point improvement year-on-year. In rupee terms, EBIT for this quarter was INR 5,178.1 million, translating to a growth of 34.8% year-on-year.
Let me now give a quarter-on-quarter EBIT margin walk-through. Starting with the tailwinds this quarter, there was a lower ESOP cost helped by -- which helped the margin by 230 basis points. In terms of headwinds, absence of earn-out reversal this quarter has resulted in a headwind of 60 basis points. In some of our accounts where we had plant transition from on-site to offshore, we have continued to retain our on-site resources in order to derisk the project. This will get normalized over a period of time.
Additionally, we witnessed delayed ramp-ups in some of our accounts. All of these together have impacted our margins by 100 basis points.
Higher amortization costs impacted margin by 40 basis points. Unfavorable currency movements impacted margin by 40 basis points. All these put together resulted in a net decrease of 10 basis points in our EBIT margin sequentially. Historically, we have rolled out our annual wage hike in the month of July. In view of the current uncertain business scenario we have decided to postpone our wage hike by a quarter.
Other income net of finance costs stood at INR 187.3 million as against INR 153.5 million last quarter. There was a foreign exchange gain of INR 188.7 million this quarter versus a loss of INR 154.3 million in Q4 of FY '25 primarily on account of mark-to-market gain on outstanding hedges and realization and restatement of our creditors.
Effective tax rate for the quarter came in at 23.5%, compared to 21.7% in Q4 of FY '25. We expect our overall effective tax rate for the year to remain in the range of 22.5% to 23.5% going forward.
Profit after tax was INR 4,249.4 million, a growth of 38.7% year-on-year. This translates to a PAT margin of 12.7%.
Earnings per share were INR 27.4 per share in Q1 of FY '26 compared to INR 25.60 per share in the previous quarter. Year-on-year growth in EPS was 36.5%.
On the back of better collections, our total cash and investments saw an improvement this quarter and stood at INR 307.8 million as on June 30, 2025.
Return on capital employed, excluding cash from capital employed for Q1 FY '26 came in at 43.8% versus 38.7%, an improvement of 510 basis points from the same quarter last year. In this quarter, billed DSO came in at 56 days, an improvement of 2 days compared to the last quarter, while unbilled DSO came in at 20 days, an improvement of 3 days compared to the last quarter.
Our operating cash flow to PAT for Q1 FY '26 stands at 98.6%. Forward contracts outstanding as of June 30, 2025, were USD 440 million at an average rate of INR 86.90 per dollar.
Now let me give you some key operational updates. At the end of Q1 FY '26, our total headcount stood at 25,340, an increase of 1,821 resources from Q1 of previous fiscal year and 746 quarter-on-quarter. Trailing 12-month attrition this quarter came in at 13.9% compared to 11.9% in Q1 last year, and it continues to be within our acceptable range.
All our resolutions based in the Annual General Meeting were passed with the requisite majority. I would like to take a moment to thank all our shareholders for their continued support.
Coming to ESG updates for the quarter. We are delighted to announce the release of Fourth Edition of Sustainability ESG report for FY '24/'25. This latest report is prepared in accordance with the Global Reporting Initiative, GRI Standards 2021 and compliance with the business responsibility and sustainability reporting requirements set by Securities and Exchange Board of India. Our BRSR report is included in the 35th Annual Report for FY '24/'25 and the BRSR core KPIs have undergone a reasonable level of assurance by an independent third party.
Persistent received Climate Action Award in the service category from Bangalore Chamber of Industry and Commerce, acknowledging our steadfast commitment to environmental sustainability and our proactive efforts in combating climate change.
Persistent was recognized as the Best Employer Emerging Inclusive Companies Large Company by Confederation of Indian Industry and applauded for its inclusive work environment.
Let me now hand over to Saurabh for commentary on key deal wins and awards and recognitions we have received during the quarter.
Thanks, Vinit. Let me now talk about key deal wins for the quarter by industry segments. Starting off with Software, Hi-Tech and Emerging Industries, our largest vertical.
Persistent was selected by one of the largest technology companies in the world to replace its legacy on-prem data warehouse and analytics product, which was declared end of life. Our long-standing relationship with the client, along with proactive development of the design and delivery of the new product, were instrumental in us winning this engagement. We are building a modern AI-enabled and cost-efficient solution, which is compatible with the legacy system, thereby providing continuity and a migration path to end customers.
We will be responsible not only for the software road map, but also its compatibility with the underlying hardware as well as on-field and remote support. This deal has a revenue-sharing commercial construct with a significant opportunity over the next 2 years.
Persistent was selected by a global leader in software quality tools for a 360-degree engagement, which includes takeover of their cloud testing platform, extension of existing product engagements and transformation using Agentic AI use cases.
Our SASVA platform capabilities were instrumental in us winning this engagement. The benefits to the client include building of new products and augmentation of existing products with AI-infused features, leading to growth acceleration for the client.
Moving on to Banking, Financial Services and Insurance. Persistent was selected by a leading U.S.-based federal corporation to replace its legacy debt issuance application with a robust, scalable platform and also provide UI/UX, DevOps and system integration capabilities. This is an example of a proactive deal sourcing by Persistent where we showcased our AI capabilities through custom use cases built using our SASVA platform.
Benefits to the customer include a future-ready debt platform for debt issuance, enhance customers' experience and automated business processes.
Persistent was selected by a U.K.-based banking and wealth management leader to co-engineer the launch of a digital banking platform for its clients. Our digital banking expertise, strong partner ecosystem and platforms such as SASVA, iAURA and Persistent Digital Banking Studio were key factors in us winning this engagement.
The benefits to the customer include faster releases and a market-leading digital experience to its clients, thereby helping grow the liability business and assets under management for the customer.
Moving next to our Healthcare & Life Sciences vertical. Persistent was selected by a leading life sciences and scientific instrumentation player to establish a software Center of Excellence in India. We won this engagement on the back of our strategic partnership with the customer and strong capabilities in program governance, including tracking of KPIs such as system utilization, process compliance, and adoption maturity.
The benefits to the customer include optimization of business processes, enhanced leadership cadence and resolution of post-transition issues.
Persistent was selected by a global leader in clinical research to build a centralized serious adverse event tracking and safety report distribution portal. This win was on the back of our strong expertise in pharma safety and co-vigilance and clinical trial management system.
The benefits to the customer include engineering of a workflow-tracking application with secure document exchange, while enhancing regulatory compliance and operational efficiency.
Now coming to the awards and recognitions we received during the quarter. Our Founder and Chair Chairman, Dr. Anand Deshpande, was conferred with the Eminent Engineer’s Award 2024 by Engineering Council of India as a recognition of his visionary leadership and pioneering India's digital engineering success story.
Persistent was named a leader in ISG Provider Lens TM 2025 for Digital Engineering. Persistent was ranked as a Leader in Everest Group Talent Readiness for Next-Gen Application Services PEAK Matrix Assessment 2025, recognizing our investments towards skill-based talent practices and focus on building AI-enabled workforce.
Persistent was acknowledged as the Most Honored Company in the 2025 ex-Mainland China Executive team survey by Extel. Among the combined buy-side and sell-side analyst rankings, prominent positions include first position in the category of Best CEO, company Board of Directors and overall ESG. Second ranking under Best IR program. And third ranking under the Best IR team.
Persistent was recognized as the Next Leader by IiAS highlighting our continued focus on transparency, responsible disclosures and robust corporate governance practices.
With this, let me hand it back to Sandeep.
Thanks, Saurabh. Let me now conclude our prepared remarks by saying that we are happy with our performance in Q1 FY '26, despite the increased caution that you saw among our customers due to macroeconomic and geopolitical uncertainties in this quarter.
We'll continue to strengthen our AI capabilities as well as our sales channels and proactively engage with our customers by striving for top quartile growth in our sector. We remain committed to our goal of reaching $2 billion by end of FY '27.
With this, let me request the operator to open the floor for questions. Operator?
[Operator Instructions] The first question is from Mehta, Bhavik.
So a couple of questions. Firstly, Sandeep, we have seen the constant currency sequential growth slowdown significantly this time to 3.3% versus, an average of 4.5% in the last few quarters. Now obviously, there was a mention of delays ramp up to an extent. But how should we think about the trajectory going forward, given how the macro is behaving right now? Is 3.5% to 4% the new normal? Or should we expect to go back to that 4%, 4.5%, we used to enjoy a couple of quarters back?
So first of all, look, we don't give forward-looking guidance. So I'm not going to give you a number per se. All I can say is, if you look at the overall growth, it was 3.9%. The constant currency, the currency movements are not necessarily in our hands. I'll leave it there. But if you look at the order book, order book is healthy. If I look at the pipeline, pipeline is healthy. We don't quantify the pipeline for people, so I'm not going to give you a number on that.
All I can say is the environment has been cautious. Decision-making has been slow. If the environment becomes a little bit better and not just for us, for everyone, I think the things will be easier. So if we can deliver good growth in a tough macro, I'm pretty sure as the things move through the next several quarters and if the market improves, you can yourself put the numbers.
Okay. Got it. The second question is, obviously, it was very good to see strong growth in BFSI and Hi-Tech. But on the Healthcare side, how should we think about the trajectory going forward, given your onshore to offshore movement being seen in the top line? I mean, should -- will this vertical remain under stress for a few more quarters before we start seeing growth coming back?
I don't think there'll be further degrowth in the vertical. It will definitely be a growth vertical for us during the year. Some of these are planned movements as well. And I'm pretty reasonably confident. All the three verticals will grow, and we have said publicly in our last earnings calls as well. BFSI will lead the growth for us this year followed by Hi-Tech, followed by Healthcare & Life Sciences. But all of them should grow.
Next question is from Manik Taneja.
Thank you for the opportunity and congratulations for the steady performance. Sandeep, on the Healthcare vertical, we see that the top customer seems to have declined sequentially. And you mentioned in your opening remarks, this might be driven by certain offshore shift of projects. While we saw strong growth in Healthcare outside of the top customers, so could you essentially talk about what drove the sharp growth there? That's question number one.
And the second question is, when I look at your segmental margins despite this offshore shift, the margins for the Healthcare vertical have actually come off on a sequential basis. And a related question to this one. How should we be reading the aspect of delayed wage increments for us given historically, we've continued to retain the timelines? That's it.
Sure. So first of all, if you look at the Healthcare vertical, Healthcare vertical for us is basically a combination of four different things: scientific instruments, medical devices, think of equipment makers, diagnostic companies and so on and so forth, pharma companies and biotechs. Third one is providers. Fourth one is payers.
And if you look at our overall growth in Healthcare, it has been very strong over the last several quarters over the last couple of years as well.
Now if you look at the largest customer that you're referring to, obviously, we have grown very well. And as a part of the entire exercise, we have done vendor consolidation. We have to move a certain amount of work over a period of time offshore to give back the benefits in terms of reduced costs and so on.
And when you do that, there is a certain overlap that you have as well. You don't necessarily have a cutover in 1 day. You basically do an overlap of cost. And if you look at our head count growth as well, the last 2 quarters, we have sequentially added headcount offshore, predominantly.
Now if you were to look at that, our subcontractor cost also, if you look at it, it's flat. So if we are adding headcount offshore, moving work offshore, we are not declining our subcontractor headcount, which is vendor consolidated. So there is a certain overlap that basically you can match to the second part of your question, which is a margin coming down a little bit in Healthcare. So that's the thing out there.
We have a fairly good pipeline across in various subsegments of Healthcare and depending on how those orders close, we are relatively confident of Healthcare continuing the growth. We did continue the growth at the 30%, 40%, 60% year-on-year that we had last year, may not be. But there will be definitely growth in Healthcare as well.
Now in terms of the wage part of it, look, the market conditions are such, right now, there's a lot of uncertainty. Whether it was uncertainty caused by India-Pakistan situation for a little bit, whether it was the Iran situation after that, whether there's a tariff situation after that. So there's a little bit of uncertainty, continuum that is happening. And the order book is dependent on people taking decisions.
So as I said before, pipeline is good, we'll let it pan out. And as a cautionary measure to make sure that we are being prudent, we have delayed the increase by a quarter and if need be, if everything goes very well, we'll take a call at the end of the year. If we compensate people for that or how it pans out.
The next question is from Sandeep Shah.
Sandeep, if I just look at book-to-bill, we were consistently at 1.5x to 1.6x in last many annual years versus last 2 quarters, we are between 1.3x to 1.4x. So does that give you some amount of discomfort where near-term growth could be slightly lower than our strong history of Q-on-Q growth, though the growth is still better, but could be relatively lower versus our own history. And how do you see the TCV opportunity in the coming quarters? Can we go back to book-to-bill of 1.5 to 1.6x?
Yes. So two parts to it. See, our revenue conversion when we look at it, revenue conversion is ACV conversion and TCV conversion. What you don't see and what we measure ourselves is the executable order book. And so we are reasonably confident of the growth journey. I don't want to put a number to it because we don't give forward-looking guidance.
Now can we do better in terms of the TCV to ACV ratio going ahead? That's the endeavor at any point in time. And I can only tell you this, the pipeline of larger deals is there. Again, we'll let the quarters pan by. And as we announce the results, you should see whatever comes out. But we are confident of growth, we are confident of larger deals in the pipeline and so on. So overall, relatively confident in the environment that we are. And if the environment improves, obviously, it will improve for everyone.
Perfect. And just a last question on margin. Last earnings call, we said we can be in this year a margin similar to the fourth quarter exit. So do we still stand by? And just wanted to understand what could be the major tailwind, especially on the ESOP cost, because it was much higher in the Q4 and FY '25. How to model that in FY '26?
Yes. Vinit?
So Sandeep, we still continue to maintain our stance in terms of improving our operating margin. We have mentioned in the past that it needs to be -- it will improve by 200 to 300 basis points by the time we reach FY '27.
If you look at our last year, it was 14.7%. Last 2 quarters, it is 15.6% and 15%. So we are pretty much confident that from a going forward basis, we are pretty much on the track as far as the margin trajectory is concerned.
As far as the stock options cost is concerned, there is -- I called out in my opening comments that, there is a reduction in the stock option cost. The stock option cost will continue to remain that the reduction has already happened. Now this will continue to remain flat for the next couple of quarters before you've seen further reduction.
On the initiatives, we'll continue to track. There are many initiatives in terms of pricing, in terms of utilization. We continue to maintain the stand that it will continue to remain high for probably next couple of quarters. We are looking at SG&A leverage. We have made investments. They are yielding results for us.
So as the revenue grows, our percent in percent, while we invest in percentage terms, our SG&A doesn't need to go up at the same pace. So there are multiple levers on which we are working. Our operational efficiency, our programs continue to deliver the necessary results that are expected out.
The next question is from Aditya Vikram.
Congratulations on a good set of numbers. Is it suffice to say -- I know, Vinit answered this question partially earlier. But is it suffice to say if the ESOP cost would have not been there, we would have seen a significant margin compression?
So ESOP cost has been there for the last several years. It depends on the cost that basically comes in, depending on what ESOPs are given in what year because, there's a flext cost valuation and so on. So it's not that it came all of a sudden and so on and so forth. So it's a part of our overall operating fabric. So there are tranches that we have given. There's a time where we cover 80% of our employees. There are about -- outside of that, about 800-odd employees covered in significantly differentiated options depending on their responsibilities, et cetera. So it's a part of our operating cost.
I wouldn't want you to think about this being delinking from that. The costs will vary over a period of time.
Okay. And the second question is that the attrition rate has gone higher. And now we are basically dealing our increment by another quarter, right? How do you see that impacting the business? And do you see any significant challenge or this is one-off quarter and we will move back to our original attrition rate? What's your thoughts on that?
Look, I don't think it is a question of this wage hike decision that has impacted this attrition. Overall, if you look across the industry, there's a slight uptick in attrition. And that may be to do with the GCCs being more active, the product companies coming here and setting up their own captives and large banks, large enterprises, et cetera. So I wouldn't link that to that strongly. We don't have any such analysis that we have done, which points to this two being correlated.
So -- and again, forward-looking attrition, we can see the trends because the notice periods, et cetera, show up. We don't see anything which points to a much higher attrition in the near future.
The next question is from Nitin Padmanabhan.
Are you seeing any near-term headwinds to margin? Because I'm asking from the perspective that you pushed out the wage hikes. But at the same time, I do see that some of these costs will reverse, right? The higher on-site resource costs and that should reverse. And so from that perspective, is there anything that you're seeing as a headwind in the near term? That was the first question.
The second thing was, which verticals are you basically seeing this prevalence of delayed ramp-ups? Is it very homogeneous or is it specific to any vertical? And finally, is this higher amortization, what's driving that? And is it sort of an ongoing number we should assume? Or is there a one-off there? What's driving it?
Yes. So Nitin, I have mentioned actually the near-term headwinds, what I mentioned, Actually, will not be headwinds. These will get normalized over a period of time. As a result of that, this will actually benefit us in terms of our margin going forward. But I don't want you to count everything that will go in margin. On the way, as we grow our company, we would also make investments. So some portion of that will get back into investments.
The second portion in terms of higher amortization, as we closed a couple of our, sort of, asset acquisitions, et cetera, that last year, like the Soho, et cetera, the full impact after the full valuation report came in, the full impact of that amortization has started as a result of that full report. And you should assume that this will continue without any substantial increase going forward.
On the Healthcare, so on the delayed ramp-up, it was basically in Healthcare & Life Sciences. And I wouldn't want to paint a picture for the whole industry. I would say it may be a case of our own customer-related delayed ramp down -- ramp up, and that basically will happen over a period of time. I don't want you to take it as an industry trend for others as well. So it's basically, some of our customers, they have their own nuances. And it was a one-off where we saw a delayed ramp up. So I don't want you to take too much from it.
Sure, perfect. Just one last one, if I may. The utilization seems to be running very high and with the kind of growth that we have. Is it because just in time is extremely easy at the moment? Or do you think this will run so hot going forward?
So look, attrition, utilization, growth of other companies, growth of the overall sector, all of these are kind of different parts of the equation and how easy it is to hire or retain or other things related to that. So as of this point in time, we don't see a reason for us to lose on the overall utilization side.
And look, if we need to go down on utilization, it's a very easy lever for us. So we'll take a call depending on the supply-demand situation. And so, we are comfortable where it is, and if we need to change, as I said before, we will.
The next question is from Vibhor Singhal.
Yes. Congrats on a solid quarter again. Sandeep, two questions from my side. The BFSI segment reported a very strong growth in this quarter. We've seen this vertical basically pick up over the past 4 quarters from a single-digit Y-o-Y growth to almost 30% growth in this quarter. So any color on basically what is driving which subsegments of the BFSI driving this both? And do you expect this -- you mentioned that BFSI will lead the growth. Do you expect this kind of momentum to continue in coming quarters as well?
Second question is on the Healthcare vertical. You mentioned again that this is -- this will be the lowest growing vertical in the three segments. But it will still be a growth. Have you seen any -- apart from the client impact that we saw in this quarter, in your conversation with this vertical client, are you hearing any concerns about the big bill that the Trump administration has brought in, if that could impact the healthcare spend of some of the clients in that segment and how they are looking at it from a forward-looking point of view?
Sure. So let me take the Healthcare segment first. If you look at the Healthcare segment, there are multiple segments within this subsegment within Healthcare. So if you look at scientific instruments, medical devices, depending on where the tariff levels settle in, especially with China. Because a lot of these supply chains are linked to China. Anyone who's equipment manufacturer is dependent on China for the equipment manufacturing, for the supply chain components.
So if the tariffs hit them badly, then obviously, the stress on the cost part will become even higher. And that's what we saw in the last 2, 3 months. People looking at alternative plans, people looking at even supply chain movements and so on and so forth. So there is definitely stress because of the tariff part, and we will see where it resolves.
Second part in the Healthcare side is the impact of the federal or the DOGE part of it. The DOGE part of it impacts the research funding to universities, the funding across various countries, the USAID, et cetera, also kind of, all of these things, at the end of the day, when the universities were doing medical research or healthcare-related research, they were consuming products and services from our customers. So a lot of these uncertainties definitely are playing more in the Healthcare & Life Sciences sector where the name of the game right now is Plan B for cost control, looking at vendor consolidation, more offshoring and so on. So the pipeline is more towards that.
Now if I look at Banking, Financial Services on the other side, again, little less cautious as compared to that. We are seeing larger deals there. AI discussions, optimizations, we're being brought in as challenges to look at the existing landscape of much bigger players and seeing if we could be part of that, how would we do it differently and so on and so forth. So different dynamics of different verticals. This year, for sure, the way we have our BFSI segment, it will grow well. Again, future growth, obviously, will depend on how the pipeline converts, and we don't give forward-looking guidance. So I won't comment beyond this year for this.
Got it. Got it. If I could just have one last question to Vinit. Vinit, the ESOP costs that came down in this quarter, will the ESOP cost be at a similar level through the year? Or do you think it can vary in the coming quarters as well?
Based on the grants that have been given so far, it will continue to remain at the same level. Any incremental grants that will be given the coming quarters will have an impact on the ESOP cost.
And does this come down further in FY '27, over FY '26, that the general amortization of ESOP cost happens?
That's right.
The next question is from Ravi Menon.
Sandeep, you spoke about how there were some delays in decision-making and yes, [Technical Difficulty] versus going out.
Ravi, your voice is going out. We can't hear you.
Ravi, if you can repeat your question, please?
Once again, let me try again. Can you hear me now?
Let's go ahead.
Yes. So I was saying, you spoke about some delays in ramp-ups. Could we also say that there were some delays in deal awards as well? And if so, then can we think about some improvement in deal wins next quarter, because some have actually slipped from this quarter to the next?
So, the way I would put it is not deal award delays. I would say, overall decision-making cycle is a little longer. And so you need a little more pipeline if you have to continue to do the bookings the way you are for any company, right? So from our perspective, that -- please don't read it as, all of a sudden, the next quarter is going to be a big windfall and so on so, we'll let the quarter pan by. And the market environment is such, it is taking more if there is certainty in the market, if these tariffs are behind us, there are more positive things that come out in the U.S., it definitely will impact the bookings and hence, the revenues going forward. But too early to say anything at this stage.
Right. And the second question is on the Healthcare side. You talked about how there was an offshore shift and you've kept the on-site contractors to make sure that the risk is minimized. So can we say that some of that cost will go off next quarter?
So look, as we have grown over the last 5, 6 years from being a $0.5 billion company to nearly a $1.5 billion run-rate company, we are also fighting bigger deals. As we fight bigger deals, this will become a flywheel motion where something comes down in terms of cost and something goes up. So we'll have to get used to an environment where at any point in time, if we are ramping up deals, we may do vendor consolidation, we may have subcontractors onshore and so on and so forth. So I wouldn't paint the picture that all of a sudden next quarter, this cost will go down. Over a period of time, this cost will definitely come down, but maybe something else will come up. If we win larger deals and we wrap up on that. So I'll just leave it.
The next question is from Dipesh Mehta.
I've just two questions. First of all, if I look at hedge position, there is a sharp increase. So is there any change in terms of the way we look at our hedge strategy?
And second question is about the SASVA. Can you provide some sense about, let's say, SASVA influence deal intake, deal pipeline revenue, whichever way you can provide some sense around it? And how it is changing compared to maybe a year back?
Sure. You want to talk on the hedge. Then I'll talk on...
So Dipesh, there is no change in the policy. We constantly keep on looking at our hedge position on a regular basis. There's a well-defined policy within that, and we continue to take our positions on a regular basis. All these numbers are pretty much within that range.
Yes. Now coming to the SASVA part of it, we don't necessarily give any data points with respect to SASVA bookings or SASVA influence bookings and so on. SASVA is a flagship platform for us. It helps us do two things. One, wherever there is a use case where the customer is willing to adopt SASVA, we are able to leverage SASVA to deliver things faster, better, provide more productivity, reduce cost for our customers and so on.
Where the customers are wary of taking a third-party platform like ours, it basically gives us a capability showcase, and we are able to leverage technologies from other providers, whether it's Microsoft, whether it's a GitHub Copilot, whether it is a Cursor, Windsurf, or any other tool, which is an engineering productivity tool.
There are further use cases of SASVA, for example, in private equity. We've been working with multiple different private equity using SASVA as a part of their tech due diligence, evaluating platforms, building tech debt reduction business cases based on which we are winning businesses and so on.
So -- and anywhere where we have taken SASVA, whether it's Banking, Financial Services, whether it's Healthcare & Life Sciences or tech companies, we definitely have got very good reception in terms of the curiosity around it, in terms of understanding our capabilities and that should bode well for us. Whether people buy a SASVA or not, whether people buy SASVA-based services or not, it kind of lands us in a very good competitive differentiated position in our industry. So it's definitely helping us in our growth.
The next question is from Abhishek Kumar.
My question is, again, on SASVA. We've heard from most of the peers that product development is where AI-led productivity has been the highest. And many of these players have been proactively passing back those productivity gains. And our sense is that results in some revenue deflation. But for us, it seems that given our core, a lot of what we do is product development. This is resulting in net new revenue for us. Just wanted to understand if I'm thinking right? And if so, what is driving this? Are we taking wallet share, market share? Or is SASVA helping us unlocking new opportunities?
Yes. So first of all, it is definitely helping us unlock newer opportunities. As I said before, SASVA is the pinnacle of how you can use AI technology for doing software development life cycle, and it is much beyond just the coding aspect of it. It is how we define the requirements, how we groom the requirements into a backlog, how we code it, how we test it, how we release it, how we support it. It's also about technology modernization from legacy platforms or legacy technologies onto new.
There are many different use cases of SASVA. And the way we have been able to articulate that to our customers, our customers definitely see us as a company that can lead from the front, using AI to help them do this, whether they are even -- after all this, if they want to do a GitHub Copilot implementation and productivity gains through that, we have even won a number of those things. So from our perspective, SASVA definitely is helping us expand our addressable market and is getting us good traction.
Second, in terms of revenue deflation, we are not necessarily seeing revenue deflation from existing customers. Now can we -- as again, I talked about in one of the case studies that I talked about as well, wherever customers are willing to give us work in a outsourced manner and allow us to use our platform, we're able to deliver significant productivity gains.
But if you look at the regulated industries, whether it's Healthcare & Life Sciences, whether it's Banking, Financial Services, it's not just that the bigger companies are adopting these platforms, big time right now. They're all experimenting. We are doing proof-of-concepts, many of them, but it will take some time for their CSOs and their IT organizations to be comfortable before they kind of adopt any of these platforms at scale. But definitely, we are ahead of others, and it should bode well for us.
My second question is you indicated that you need bigger pipeline given the slowdown in decision-making, et cetera. Do you see, therefore, a, revenue and margin trade-off going forward? Are you willing to sacrifice margin to make sure that your pipeline is larger and you achieve your $2 billion goal by FY '27?
Look, two parts there. One, is there a hurry to reach to a $2 billion mark or any billion dollar mark, there's no hurry to reach there. We want to reach there in a healthy manner. We'll deliver revenue growth, but a profitable revenue growth. It's not about achieving revenue growth at any cost.
At the same time, if it is about diluting the margins a small bit to create capabilities that can get us larger deals, we'll take a prudent call. But it will not be that all of a sudden, we drop our margins and we are in a rush to get to a $2 billion mark or outcompete anyone. We don't care whether we are the 9th largest or the 12th largest company in the industry. As long as we are the best ones from a technical capability.
And in our discussions, the Tier 1s of tomorrow are not going to be based on size. There are many companies in the U.S. who are like $15 billion or $16 billion and their market caps are less than $4 billion. And they do revenue very well. So the fund is not in being any size or run after size, it's about bringing good capabilities, having good customer relationships, delivering good value, and that's what we are focused on.
The next question is from Suraj Malu.
If I look at the client-wise revenue and if we check the split, like the 6th to 10th customer or meet 11th to 20th customers bucket, these customer buckets have grown at like double-digit 10%, 12% Q-o-Q. Whereas the top 5 customers bucket is flat. And I understand that's because of the largest client in Healthcare. So if one were to remove that largest client in Healthcare, how would the rest four customers' revenue look like the growth?
Yes. So look, we don't bifurcate like that. Today, it's a question of how would the rest four be. Tomorrow, it could be in another bracket. So look, it's like a portfolio of customers that you have. Just like any good investment strategy, you have portfolio of investments that you do. At the end of the day, Persistent is some of the parts. These customers are those parts, the verticals, the subvertical, geographies.
The way we are looking at it is, our endeavor is to grow every part of it. But there will be quarters when one customer may not grow at that extent that the whole company does. So these are -- this is a part of the entire game. So we are okay with where we are. We know we are going heavily. Overall, if you look at the top 100 customers on a year-on-year basis, 22.4% growth in current environment, we're very happy with that, and we'll try and do better.
Got it. And my second question is, if you can throw some light on some new areas or verticals that you are working on, like be it cybersecurity or telecommunication or anything?
Yes. So look, we work in three industry verticals: Software Hi-Tech. Second part is our Banking, Financial Services and Insurance. Third is Healthcare & Life Sciences. We have said it in our earlier earnings calls as well. Healthcare & Life Sciences, and Financial Services are two of the top spenders in any GDP, whether it is the U.S., whether it is other countries.
Each of these segments has multiple subsegments under them. The first endeavor that we have is to basically go deeper into these verticals. And as we grow these verticals over the period of next 1, 2, 3 years, we'll see if we need to go into other verticals, whether it is auto, whether it is industrial, whether it is others. And if we need to, we'll look at whether we do it inorganically or we are able to spawn off some of that organically. So for now, we are focused on these, and we'll keep evaluating the opportunities that come across.
Operator, we are nearly at the end of the thing, so we can take one more question and then we can conclude.
The last question is from Dhanashree Yadav.
Yes. Congrats on good set of numbers. My question is, again, regarding to our aspiration of $2 billion in revenues. So just wanted to understand like is there any specific plan laid out for this in terms of how it will be inorganic and organic mix? Or I mean, since we are leveraging more AI-related platforms and all, so if you can give more color on here on whether we will be growing more organically or -- and if inorganic component is there and what would be the size that we are looking at?
Sure. So if you look at it where we are today, we have to get to $2 billion by FY '27, which is ending in March 2027. We need a compounded annual growth rate in the range of 19% to 20%. We are tracking to that. And definitely, within that between now and then, we will do tuck-in acquisitions or if we get a good scalable acquisition in geographies like Europe, where we have clearly said that we want to be 15% in revenue terms, as we go ahead in the next 2 to 3 years, we'll look at that.
So on the -- the way to look at acquisitions for us would be, most of these would be capability-led, smaller acquisitions. The only place where we would do a scale acquisition would be if we get some good asset in Europe. And a combination of these two should lead us to the growth aspiration that we have of $2 billion.
Again, please keep in mind, that's a growth aspiration. We are in no hurry to get there at any cost. It will be at a profitable, sustainable revenue and a combination of organic and inorganic.
So with that, we come to the end of this call. And thank you, everyone, for spending time with us today. We are looking forward to connecting with you in 3 months' time to provide an update on our progress.
And with this, we'll close the call. Thank you.
Thank you very much to Persistent Systems' management team. Ladies and gentlemen, on behalf of Persistent Systems Limited, that concludes today's conference. Thank you for joining us, and you may now disconnect your lines and exit the webinar. Thank you.