Persistent Systems Ltd. announces an acquisition

Persistent approved the following maximum issuance limits:

• NCDs: up to Rs 8,000 Crores ^[1]
• Commercial Paper: up to Rs 1,000 Crores ^[2]
• Combined financing ceiling: Rs 9,000 Crores, derived from the two approved limits.

Technically, the October 16, 2026 approval was given by the Special Committee, acting under authority delegated by the Board; the issuance was described as long-term debt financing for the Nagarro SE acquisition ^[1].

The acquisition disclosure specifies a cash offer price of EUR 81 per Nagarro share, but does not state a single aggregate purchase consideration in the cited material ^[3]. The initial 7,568,145 shares tendered imply consideration of approximately EUR 613.02 million at EUR 81 per share, derived from the disclosed share count and offer price ^[3]. This is not the total transaction consideration because it excludes the approximately 22.10% stake already secured from Lantano and any shares tendered during the additional acceptance period ^[3].

Implication: the Rs 9,000 Crores represents the approved debt-financing envelope for the acquisition, not a disclosed one-for-one match with Nagarro’s total purchase price. Exact alignment cannot be established without the final number of shares acquired and an applicable EUR/INR conversion rate.

Verdict: The proposed issuance would move Persistent Systems from a zero-debt, net-cash balance sheet to positive gross leverage and would reduce interest coverage. However, the exact post-acquisition ratios cannot be calculated from the disclosed terms because the actual NCD/Commercial Paper drawdown, coupon, tenor, currency conversion and Nagarro’s pro forma EBITDA are not specified.

Starting position

Persistent’s consolidated Q2 FY27 balance sheet showed:

• Total debt: Rs 0 Crores and debt-to-equity: 0.00x ^{[4] [5]}
• Net cash: Rs 1,631 Crores, reflected as net debt of negative Rs 1,631 Crores ^{[6] [7]}
• Total equity: Rs 8,589 Crores ^[8]
• TTM EBITDA: Rs 3,000 Crores and interest coverage: 23.19x ^{[9] [10]}

The board-approved financing ceiling reported in the available announcement is USD 1,250 million for long-term debt financing; the announcement does not provide the final NCD/Commercial Paper split or the amount that will actually be drawn ^[11].

Mechanical impact

• Gross debt-to-equity:

Post-acquisition D/E = total NCD and Commercial Paper outstanding / pro forma equity. If equity remained near the current Rs 8,589 Crores, every Rs 1,000 Crores of new borrowing would add approximately 0.12x to gross D/E.

• Net leverage:

If Persistent retains its existing cash, net debt would be approximately: new borrowing − Rs 1,631 Crores. Thus, the existing cash balance provides a partial buffer. If the cash is used toward the acquisition consideration, that offset would largely disappear.

• Interest coverage:

Using TTM EBITDA and the reported 23.19x coverage ratio, existing annual interest expense is mechanically implied at approximately Rs 129 Crores. A simplified pro forma calculation is:

Interest coverage = combined EBITDA / existing interest expense plus new NCD/Commercial Paper interest

Therefore, coverage will fall unless Nagarro’s incremental EBITDA and acquisition synergies more than offset the additional financing cost. The reported Q2 FY27 coverage of 17.51x was already below the TTM level, indicating that the recent quarterly coverage base is weaker than the historical run rate ^[12].

Analyst read

The financing is likely to be more material for gross leverage and interest coverage than for net leverage initially, because Persistent starts with substantial cash. The key swing factors are the amount actually drawn, the weighted financing cost, how much cash is consumed at closing, and Nagarro’s post-close EBITDA contribution. Persistent’s statement that the transaction is expected to be cash-EPS accretive in the first year does not, by itself, establish that interest coverage will improve, since EPS also reflects depreciation, taxes, purchase accounting and other below-EBITDA items ^[13].

Verdict: Persistent’s decision is materially more aggressive than a conventional internal-accrual funding model. It has approved up to Rs 8,000 Crores of NCDs and Rs 1,000 Crores of commercial paper for the Nagarro acquisition, despite having no reported debt at FY26 year-end. This preserves cash for operations and enables a transaction much larger than its existing cash pool, but introduces interest, refinancing and integration risk that internally funded acquisitions largely avoid.

Transaction structure and scale

The Special Committee approved the NCD issuance as part of long-term debt financing for Nagarro, following board and shareholder approvals.^[1] The NCD authorization is up to Rs 8,000 Crores through private placement.^[1] The CP authorization is up to Rs 1,000 Crores, also through private placement; the CPs are proposed to be listed on NSE, are unsecured and have a tenure of up to one year.^[2]

The Rs 9,000 Crores maximum authorization is not the same as debt already drawn. The filing does not provide the final drawdown, coupon, NCD maturity profile or total interest cost.

Relative to Persistent’s FY26 balance sheet, the potential borrowing is large:

• Up to 8.37x FY26 cash and equivalents of Rs 1,075 Crores ^[14].
• Up to 5.09x FY26 operating cash flow of Rs 1,767 Crores ^[15].
• Up to 3.02x FY26 EBITDA of Rs 2,976 Crores ^[16].
• This compares with FY26 total debt of zero ^[17].

Persistent has described the Nagarro offer as a cash transaction at EUR 81 per share and reported that 83.25% of Nagarro’s share capital had been secured by September 2026.^[18] The financing therefore supports a control acquisition rather than a small bolt-on purchase.

Peer balance-sheet comparison

The cited evidence does not establish that every peer has historically followed an internal-accrual-only acquisition policy. It does, however, show that the peer group has generally retained substantial cash or net-cash capacity, with Mphasis the main exception.

Persistent Systems

Persistent entered the transaction from a net-cash position: FY26 cash was Rs 1,075 Crores against zero debt, with operating cash flow of Rs 1,767 Crores.^{[14] [17] [15]} The Nagarro financing is therefore a step-change from self-funded operating growth to externally funded inorganic expansion.

Coforge

Coforge had FY26 debt of Rs 400 Crores, cash of Rs 1,094 Crores and operating cash flow of Rs 1,792 Crores.^{[19] [20] [21]} Its reported net debt was negative Rs 694 Crores, indicating net cash.^[22] This is consistent with meaningful internal funding capacity, although it does not by itself prove that all historical acquisitions were funded from accruals.

MphasiS

MphasiS is less conservative than the debt-free peer examples: FY26 debt was Rs 1,793 Crores versus cash of Rs 1,123 Crores, producing reported net debt of Rs 670 Crores.^{[23] [24] [25]} Its operating cash flow was Rs 1,253 Crores.^[26] It is therefore not a clean internal-accrual-only benchmark and already carries a more leveraged balance sheet than Persistent did before Nagarro.

Hexaware Technologies

Hexaware reported zero debt and Rs 1,971 Crores of cash at FY26 year-end.^{[27] [28]} Its cash position suggests considerable funding flexibility, but operating cash flow and a peer-specific acquisition-funding history are not reported alongside these figures.

Tata Elxsi

Tata Elxsi reported zero debt, Rs 195 Crores of cash and Rs 664 Crores of operating cash flow in FY26.^{[29] [30] [31]} These figures are on a standalone basis, unlike the consolidated basis used for the other companies, so the scale comparison is directional rather than fully like-for-like.

Tech Mahindra

Tech Mahindra had FY26 debt of Rs 2,186 Crores, but cash of Rs 5,046 Crores and operating cash flow of Rs 6,172 Crores.^{[32] [33] [34]} Its reported net debt was negative Rs 2,860 Crores.^[35] It has existing debt, but its cash generation and net-cash position provide a substantially different funding cushion from Persistent’s proposed Rs 9,000 Crores acquisition financing.

Capital-allocation implication

The contrast is therefore not simply “Persistent uses debt while peers use accruals.” It is:

• Persistent: prioritises transaction scale and speed, while retaining existing cash for liquidity and integration needs.
• Coforge, Hexaware, Tata Elxsi and Tech Mahindra: entered the comparison period with net-cash or debt-free positions, giving them the option to fund smaller inorganic moves without a major leverage reset.
• MphasiS: demonstrates that the peer set is not uniformly debt-free or internally funded.

Persistent’s management has stated that the transaction is expected to be cash-EPS accretive in the first year.^[13] That is a management expectation, not evidence yet of post-acquisition free-cash-flow accretion or debt-service coverage. The key distinction versus an internal-accrual model will be whether Nagarro’s cash generation and the combined group’s operating synergies materialize quickly enough to offset the fixed financing burden, particularly for the short-term CP component.