Persistent Systems falls 5% as dull brokerage views over recent acquisition weighs

Shares of Persistent Systems fell as much as 5 percent on Monday after a slightly dull commentary by brokerage firms on the acquisition of Data Glove Assets. At 9:53 am, the stock was trading 2.5 percent lower at Rs 4,088.3 on the BSE.

Last week, Persistent Systems had announced that it had entered into

an agreement to acquire the business of Princeton, New Jersey-based Data Glove Inc. Data Glove is a global leader in transformative consulting services and business solutions with total annual revenue for CY21 of $48.96 million.

Reacting to this development, several brokerage firms expressed concerns over the acquisition diluting EPS and EBIT margin.

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Here's what the brokerage firms say:

The brokerage firm has a 'sell' call with a target price of Rs 3,395. The acquisition would add 5-7 percent to the company’s revenue on an annual basis. However, it is expected to dilute the EBIT margin by 75 basis points in FY23, according to Citi.

The acquisition will bolster Persistent Systems’ cloud capability but is mildly EPS dilutive in the near-term, Nomura said. The brokerage firm has retained the company as the top midcap IT pick with a ‘buy’ call and target price of Rs 5,440.

Though the acquisition would be neutral at EBITDA margin, the intangible amortisation expenses would impact EBIT margin by 75 basis points in FY2023, the brokerage firm believes. Revenue synergies are expected to gradually reduce margin dilution, Sharekhan added. The domestic brokerage firm has retained its 'buy' call on the company's shares with a target price of Rs 5,550.