Coforge, Persistent Systems continue on growth path on back of stable leadership

While both companies deploy different strategies as they chase the next $1 billion, a commonality of their growth so far has been stability at the top. 

Persistent Systems, based in Pune, reported a 5.27% sequential and an 18.4% yearly jump in revenue to $345.5 million, its second straight quarter of QoQ revenue growth exceeding 5% and 18 consecutive quarters of overall revenue growth. Most of this growth came from clients in North America, which contributed $16 million, or about 92%, of the company’s incremental revenue of $17.3 million.

The company’s net profit rose 5.4% sequentially to $38.7 million.

At Noida-based Coforge, revenue and growth were higher than that of Persistent. The company’s revenue grew 26.8% sequentially and 32.8% on a yearly basis to $369.4 million.

The Americas made up $58.3 million, or about 75% of the company’s $78.4 million sequential incremental growth. Coforge’s revenue, discounting acquisitions, stood at $309.8 million, which is a 6.3% jump from the preceding quarter.

Coforge said in May it would acquire Hyderabad-based Cigniti Technologies, an AI & IP-led digital assurance and engineering services company, shelling out $220 million for a 54% stake in the company by September. The acquisition, its biggest, would give a shot in the arm to Coforge’s businesses by establishing three new verticals – retail, hi-tech, and healthcare.

Vertical performance

The retail vertical would operate at almost $100 million per annum while hi-tech and healthcare would operate at about $50 million per annum immediately after the merger, Coforge said in a statement to the stock exchanges dated 2 May 2024. The company said its intent to create scaled-up verticals in these three sectors would get a significant head-start with the acquisition.

While the company did not disclose revenues for the retail, hi-tech, manufacturing, and healthcare verticals, it clubbed the revenue from these verticals as “others,” which is now its second-largest cash cow. Coforge got $96 million, or 25.9% of its revenue, from this segment in the quarter ended September. This implies that Coforge got $34.6 million, or 44% of its incremental revenue, from clients in the “others” vertical.

“The cross-sell of services was something that we were absolutely assured about because we had spent a lot of time with the sales team of Cigniti, every level of the sales team, and it’s not the demand environment recovery that is largely driving the cross-sell effectiveness,” Sudhir Singh, chief executive of Coforge, said on a post-earnings conference call with analysts on 23 October. “The team was primed, and it was hungry, and our horizontal business units were primed.”

Coforge reported a net profit of $30.8 million in the quarter, up 8.45% sequentially, driven primarily by the Cigniti acquisition. 

On the other hand, healthcare and life sciences was Persistent System’s best-performing vertical as clients in this segment gave the company almost half of its $17.3 million incremental revenue.

In terms of headcount, Persistent Systems had 23,237 employees at the end of the quarter, down 613 since the beginning of the fiscal. However, Coforge added headcount both organically and by virtue of the Cigniti acquisition. The company recorded its highest quarterly headcount growth last quarter. The company ended with 32,483 employees last month, a net addition of 5,871 sequentially, including 4,430 employees from Cigniti.

While Coforge’s acquisition of Cigniti is expected to broaden the company’s coffers, for Persistent, the focus is on top accounts. Over the past four years, Persistent has been looking to do away with contracts that do not fetch the company much business.

“We are not trying to renew the contracts where, you know, the contracts are much smaller, companies don’t have the propensity to grow with us and so on. So, there’s a certain amount of rationalisation that we have been incrementally doing over the last four years,” Sandeep Kalra, chief executive officer of Persistent Systems, said at a post-earnings conference on 19 July.

The company held an offsite meeting with 250 of its senior leaders in New Jersey to focus on Persistent’s top 100 accounts.

“Long-term growth drivers – broad-based growth across verticals and geographies as well focus on top 100 accounts – will propel growth in the coming quarter,” said Sameer Pardikar, vice-president for institutional equity research at Elara Capital in a note dated 23 October.

Stable leadership

Both Coforge and Persistent seek to reach $2 billion in revenue in the next three years. While the two companies might have various approaches to attain growth, the key so far has been stability at the top. While Sandeep Kalra has been CEO of Persistent since October 2020, Sudhir Singh, a former Infosys executive, has been at the helm at Coforge since May 2017.

This leadership stability comes when at least three of India’s top five software services companies underwent a change in CEOs in the past 18 months. 

“Execution is what sets these two companies (Coforge and Persistent Systems) apart. They are rigorous in getting things done and the companies’ leadership that has been in charge for so long is what makes the difference,” a Mumbai-based analyst told Mint on condition of anonymity.

Coforge and Persistent Systems are the latest entrants to Indian IT’s $1 billion club after their revenue exceeded $1 billion in March last year. While Coforge grew 11.7% on a yearly basis to end FY24 with $1.12 billion in revenue, Persistent Systems reported 14.5% growth to end with $1.19 billion.

Their larger peers including Tata Consultancy Services, Infosys and HCL Technologies posted single-digit growth primarily because they are bigger in scale. TCS, Infosys and HCLTech grew 4.1%, 1.9%, and 5.4%, respectively, on a yearly basis to end FY24 with $29.1 billion, $18.6 billion, and $13.3 billion in revenue, respectively.

Persistent Systems was set up in 1990 by Anand Deshpande, a former Hewlett-Packard employee. He currently owns 29.35% of the company, making him the single-largest shareholder of the company. The company has a market capitalisation of ₹89,169.79 crore.

Coforge, formerly NIIT Technologies, started as an independent firm in 2004. It was acquired by Baring Private Equity in 2019. It is owned entirely by the public and has a market capitalisation of ₹50,323.46 crore.