Persistent Systems looks to grow in Europe as macro headwinds linger

Persistent Systems plans to scale up its Europe business to diversify revenues away from the US, as macroeconomic uncertainty, muted IT spending and sector-wide volatility continue to challenge growth

Persistent Systems is looking to expand its presence in Europe and reduce its reliance on the US as the key geographic market, in view of the macroeconomic uncertainty and volatility that has impacted almost all IT services players.

 

For all IT companies, the US has been the dominant market, often contributing almost 50 per cent to the topline, but for Persistent, that is too heavily skewed with more than 80 per cent.

 

In contrast, Europe contributed just 8.5 per cent to the company’s revenue for the third quarter ended December 31.

 

“We want to increase our revenue in Europe. Given what is happening in the market and otherwise as well, we would want a little bit more revenue diversification in Europe. The target is to be in the range of 12-15 per cent on a longer term basis,” CEO and MD Sandeep Kalra told Business Standard in an interaction.

 

For that, the company would need to tweak its acquisition strategy, which primarily has been tuck-in purchases to enhance capabilities.

 

“If we go to Europe, we'll do a scaled acquisition, which will give us access to customers’ capability. We need access to customers because that's what we lack in Europe. In the US side of it, we have customers and we want to go deeper into capability,” he added.

 

IT companies are increasingly looking to diversify beyond traditional revenue segments, as growth has remained muted over the past few years, resulting in low single-digit growth across the sector.

 

Tata Consultancy Services (TCS) is diversifying into data centres, while Infosys and others are focusing on cybersecurity as a vertical or expanding into geographies such as Australia. HCL spent $400 million in December to buy two companies in telecom and data and artificial intelligence space.

Persistent, however, will not focus on physical AI, unlike its larger rivals, and the focus will be more on the software side and AI agents.

 

“The software development lifecycle is a huge market. Whether it's product development, or identifying existing products, application development, application modernisation, or agentic AI. For anyone to implement agentic AI solution across the organisation, the first thing is to plumb data the right way. So you need a lot of data modernisation,” he added.

 

That means customers are squeezing out money from traditional technology spends and putting that into more transformational projects which are more business oriented and can drive revenue.

 

“They have seen that support activity does not add to revenue and so are not looking at incrementally taking it (tech spend) up huge notches. There may be a small bit, single digit, lower single digit increase in their budgets,” he said.

 

But not all deals are AI driven, Kalra clarified, with such deals forming less than 10 per cent of the Pune-based company’s revenue, or about $170 million, at the end of the third quarter. TCS, in comparison, reported AI revenue of $1.5 billion, or five per cent of the topline, while HCL’s advanced AI revenue was about $148 million.