Note: This is a preliminary transcript and may contain inaccuracies. It will be updated with a final, fully-reviewed version soon.
Persistent Systems Ltd (NSE: PERSISTENT) Q3 2026 Earnings Call dated Jan. 20, 2026
Corporate Participants:
Saurabh Dwivedi — Head, Corporate Development & Investor Relations
Sandeep Kalra — Executive Director & Chief Executive Officer
Vinit Teredesai — Executive Director & Chief Financial Officer
Debashish Singh — Chief Information Officer
Jaideep Vijay Dhok — Chief Operating Officer, Technology
Analysts:
Bhavik Mehta — Analyst
Sandeep Shah — Analyst
Unidentified Participant
Nitin Padmanabhan — Analyst
Abhishek Kumar — Analyst
Vibhor Singhal — Analyst
Ravi Menon — Analyst
Presentation:
Operator
Ladies and Gentlemen, good day and welcome to Persistent Systems Earning Conference call for third quarter FY26 ended December 31, 2025 we have with us today on the call Dr. Anandresh Pandey, Chairman and Managing Director Mr. Sandeep Kalra, Executive Director and Chief Executive Officer Officer Mr. Vinit Terade Sai, Executive Director and Chief Financial Officer Mr. Jaydeep Dhok, Chief Operating Officer Mr. Debasher Singh, Chief Information Officer and Mr. Saurabh Dwedi, Corporate Vice President, Finance and Strategy Please note all participants line will be in listen only mode and there will be an opportunity for you to ask questions after management’s opening remarks.
Should you need any assistance during the conference call, please raise your hand from the participant tab on the screen while asking question requesting you to please identify yourself and your company. Please note this conference is being recorded. I now hand over the conference to Mr. Swar Abdivedi. Thank you and over to you Sir.
Saurabh Dwivedi — Head, Corporate Development & Investor Relations
We sincerely appreciate your participation in today’s call. I will quickly outline the agenda. Sandeep will begin with an overview of our results and commentary on the business. Vineet will take you through the financial details and key operational metrics for this quarter. Debashish, our Chief Information Officer will highlight how we are using AI internally at persistent as customer 0 Jaydeep will provide you an update on how we are helping our customers adopt and scale AI. 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 and 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.
Sandeep Kalra — Executive Director & Chief Executive Officer
Thank you Saurabh. Before I begin I would like to wish all of you a very happy and prosperous New Year. I hope all of you are doing well. Now let me start with a quick financial summary for the quarter gone we achieved a healthy revenue growth of 4% quarter on quarter and 17.3% year on year, delivering $422.5 million in Q3 of fiscal 2026. On a trailing twelve month basis, our revenue stood at $1.6 billion. This marks our 23rd sequential quarter of revenue month in rupee terms, the growth for the quarter came in at 5.5% quarter on quarter and 23.4% year on year.
In constant currency terms, the growth for the quarter was 4.1% quarter on quarter. As you might be aware, new labor codes were recently announced in India which required additional provisioning for gratuity payment and leave encashment leading to an impact of 2.3% on the EBIT margin and approximately 1.8% on the PAT mar. After accounting for this impact, the EBIT for the quarter came in at 14.4%, which translates into a decline of 7% quarter on quarter and an increase of 19.1% year on year in absolute terms.
Profit after tax for the quarter came in at 11.6%, a decline of 6.8% quarter on quarter and an increase of 17.8% year on year in absolute terms. Vineet, our CFO 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 674.5 million, with the total contract value of new bookings coming in at US$369.1 million. The annual contract value of bookings for the quarter is US 501.9 million, out of which the ACV from new bookings contributed US$255.8 billion.
As always, both the TCB and ACV numbers include all bookings small and large renewals as well as new bookings across existing and new customers. Also, as highlighted in our earlier calls, our revenue conversion on a quarterly basis is a function of ACV bookings closed in previous quarters as well as the conversion from multi year deals booked in previous years which are included in our total contract value or TCB bookings that we announce 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 among our various client markets with our top five customer revenue growing by 25.6%, top 10 by 28.3%, top 20 by 26.3%, top 50 by 22.7% and the top 100 customers by 20.1%. Coming to the year on year, movement of customers across various reported buckets. Customers with annual revenues greater than US$75m increased from 3 to 4 on a year on year basis. Customers with 50 million plus annual revenue remained stable at 4. Customers in US$20m plus category increased from 10 to 12, those in US$10 million plus category increased from 22 to 28 and the customers in US$5 million plus category saw a significant increase from 47 to 61 over the last month.
Customers in US$1 million plus category increased from 189 to 195. This demonstrates our consistent success in cultivating deeper, more resilient partnerships with our customers over time. Coming to the details of our geographic performance in terms of year on year growth this quarter in USD terms, North America revenue grew by 18.6%, Europe grew by 22%, India declined by 2.5% and rest of the world grew by 37.9%, although on a smaller base. In terms of industry segments, this quarter’s growth was led by BFSI vertical with 29.3% growth, followed by Software, High Tech and Emerging industries and Healthcare Life Sciences which grew by 14.7% and 7.4% respectively on a year on year basis Coming to the Update on Interim Dividend I am pleased to share with you that the Board of Directors has declared an interim dividend of rupees 22 per share on face value of rupees 5%.
It’s our endeavor to maintain a consistent dividend payout ratio while we augment our growth through capability led acquisitions. Coming to Other Organizational Updates I’m pleased to share an update on our annual planning exercise which we call the Huddle. The Huddle successfully concluded last week in Pune. This year’s hurdle brought together about 650 senior global leaders across sales, delivery and enabling functions, making it one of our most comprehensive strategic gatherings to date. Over the course of this intensive off site, we not only charted our priorities and focus areas for FY27, also assessed our progress towards our long term aspiration of reaching $5 billion in annual revenue by FY31 and did intensive trainings on the AI side for our entire leadership.
I’m also happy to share that we remain firmly on track, advancing confidently towards our aspiration of $2 billion by March 2027 and laying the foundation of $5 billion by March 2013. With this I conclude my prepared remarks and would like to invite Vineet, our CFO to give a detailed color on quarterly financials and related matters. Vineet, over to you.
Vinit Teredesai — Executive Director & Chief Financial Officer
Thank you Sandeep. Good evening and good day to all. Thank you for taking the time to join us today. Let me now take you through the financial highlights for the quarter gone Q3FY26 revenue stood at $422.5 million registering a year on year growth of 17.3%. In rupee terms it translates to 37782.1 million growth of 23.4% year on year. EBIT margin for Q3FY26 came in at 14.4% 50 basis decline year on year. EBIT for this quarter was rupees 5427.5 million translating to a growth of 19.1% year on year.
Let me now give you a quarter on quarter EBIT margin walkthrough starting with the tailwinds this quarter favorable currency moment has resulted in a tailwind of 30 basis points. Lower subcontractor cost has contributed to 20 basis point improvement in margins. A combination of higher utilization at onsite Pyramid rationalization and HD optimization resulted in a margin benefit of 40 basis points. As we have been sharing with you, a greater proportion of our services engagements are now driven by our AI platform and tools.
Our commercials with the customers are also evolving to include a combination of people and tool driven pricing models. Couple of engagements of this nature which we signed in the last quarter and which are now scaling up have contributed to an improvement in margin by 150 basis point. In terms of headwinds as we have mentioned, last quarter wage hike awarded to employees effective 10-01-2025 has resulted in a headwind of 180 basis point. In addition there was a one time impact of 230 basis point on EBIT margin on account of increased provisioning for gratuity and revenue encashment in accordance with the new Labor Code announced by the Government of India.
Going ahead, our provisioning will be in accordance with the new Labor Codes. Furloughs have impacted the margins by 20 basis point this quarter. All these headwinds and tailwinds put together have resulted in 190 basis point impact on our EBIT margin on a quarter quarter basis. Excluding the 1 time impact of Labour Court, our EBIT margin would have been 16.7% of 40 basis point improvement over Q2FY26. Other income net of finance costs stood at 300.6 million rupees as against 58.9 million rupees in Q2 of FY26.
Increase in other income was primarily due to earn out credit of rupees 129.8 million rupees from one of our recent acquisitions. Foreign Exchange loss of rupees 78.2 million rupees this quarter as against a gain of 272 million rupees in Q2 of FY26 was primarily on account of mark to market losses on hedges. Effective tax rate for the quarter came in at 22.2% versus 23.5% last quarter. ETR for FY26 will be in the range of 20 to 24%. The ETR needs to be looked at on a yearly basis as all seasonal elements will be taken care of on a yearly basis.
Profit after tax was 4394.5 million rupees a growth of 17.8% year on year. This translates to a PAT margin of 11.6%. Earning per share was 28.2 28 rupees 20 paise per share in Q3 of FY26 compared to 30 rupees 30 paise per share in previous quarter. Year on year growth in EPS was 16% excluding one time impact on new labor codes our path would have been 13.4%. A growth of 35.7% in year on year terms excluding cash from capital employed. Return on Capital employed for Q3FY26 came in at 43.8% versus 45.5% in the previous quarter.
Total cash and Investment stood at 29,046.5 million rupees as of 31st December 2025. In this quarter build DSO came in at 57 days while unbilled DSO came in at 24 days. Build DSO increased by 3 days and unbilled DSO increased by 3 days compared to Q2 of FY26. Operating cash flow to PAT for this quarter came in at 91% compared to 114.3% in the previous quarter. This increase in the DSO and decline in the OCF to PAD ratio were driven by collections below to the first week of January due to the holiday season for certain customers.
Forward contracts outstanding is of 31st December 2025 were 490 million US dollars at an average rate of 89.1 rupees per dollar. Let me now give you some operational updates at the end of Q3 FY26 our total headcount stood at 26,711, an increase of 487 from previous quarter. Trailing 12 months attrition this quarter came in at 13.5% compared to 13.8% in previous quarter. Coming to Updates on ESG Our commitment to sustainability and responsible business practices continues to deliver measurable progress, reinforcing our position as a trusted and forward thinking organization.
This quarter I am pleased to announce that our S and P Global ESG score has improved to 86, a step up from last year’s score of 85. This improvement underscores the effectiveness of our ESG strategy and the consistent progress we are making across ESG dimensions. As we move ahead, we remain focused on embedding ESG principles into every aspect of our operations. These efforts not only strengthen our resilience but also create long term value for our stakeholders and communities we serve with this.
Let me now hand over to Debashish for commentary on AI progress.
Debashish Singh — Chief Information Officer
Thank you Vinit. I am pleased to join all of you today. My name is Devashi Singh and I serve as the Chief Information Officer of Persistent. My mandate is to drive enterprise wide technology transformation in alignment with our business priorities. We are focused on accelerating a scalable, secure and AI driven IT foundation that enables our growth, improves operational efficiency, strengthens our risk posture and enhances employee experience as Customer zero. Our early investment in trusted AI platforms combined with deep partnership with hyperscalers like Microsoft, aws, Google and Oracle Salesforce have allowed us to move AI from pilots to production enabled by strong data foundations.
Sorry about that. And responsible AI governance. What we consistently observe across the industry is that successful AI programs depend less on model sophistication and more on operational maturity, data readiness, process redesign and governance. To drive this transformation at scale, we have built a modular agentic AI platform, AssistX which embeds domain specific AI agents across the enterprise within our System of Records. System of Intelligence and System of Action. Our system of Record including Oracle, Microsoft, SharePoint and Salesforce serve as the enterprise single source of cloud.
The System of intelligence powered by Microsoft Azure Lakehouse along with aws, Google and Azure fabric based models provide consistent, accurate and trusted insights. Assist X, our System of Action, enables autonomous fulfillment through AI agents across sales, sales operation, legal Delivery, Acceptance, Finance, HR, IT Procurement and the Talent Supply Chain. AssistX is governed by our AI management system aligned with ISO 4000:2001, ensuring responsible and secure AI operation at scale. At its core, Assist X is transforming how work gets done at procedure by eliminating manual bottlenecks and enabling autonomous fulfillment.
It drives true enterprise hyper productivity, enabling employees to focus on higher value decision making tasks while AI agents manage operational workloads. All ASSIST agents are accessible within Microsoft Teams providing a conversational experience with human in the loop oversight. To name a few examples, Assist X includes Navigate Assist and Renewal Assist in Sales Operations, PI Assist and Carrier Assist in hr, IT Assist and Observability Assist in Technology Operation, Legal Assist and Contract Assist in Legal.
The breadth and the majority of these agents continues to strengthen our enterprise wide AI operating model with measurable outcomes. Since inception our agents like Navigate Assist has reduced content search and proposal preparation time significantly accelerating development of proposals. PI assist now resolves 83% of employee HR queries and workflow request autonomously. IT Assist has reduced meantime to resolution for IT related incidents from three hours to under 30 minutes, cutting manual workload by 70%.
To further extend this value, we recently introduced PACS, a unified agentic interface that enables voice driven natural language interaction and orchestrates task fulfillment through AI agents. These innovations are not only transforming Persistent internally becoming showcases for our customers pursuits, but also earning strong external recognition from industry leading stalwarts and institutions. Satya Nadella, Microsoft CEO highlighted Assist X Impact in his AI World Tour keynotes in January and December 2025.
Rob Howard, VP of Product Management at Microsoft showcased Navigate Assist LIVE during Microsoft Ignite 2025. Persistent was recently awarded the prestigious CII AI Award demonstrating our leadership for responsible and scalable enterprise AI innovation. In summary, leveraging our landscape we are building a future ready AI powered digital enterprise Strengthening operational maturity Accelerating growth Positioning Persistent as a lighthouse of innovation as customer zero. Now I will hand over to jt, our Chief Operating Officer to discuss how we are progressing externally with our customers.
Jaideep Vijay Dhok — Chief Operating Officer, Technology
Thank you Dave. Let me share a few updates on how we are helping our clients adopt and scale up AI with measurable outcomes. Our AI execution strategies anchored around three strong pillars AI for Technology focused on Engineering Hyper Productivity AI for Business focused on business Hyper Productivity and Enterprise Data Readiness along with responsible AI in engineering Hyper Productivity, our AI platform for engineering SASWA continues to be the central driver for our clients. Our scale out continues through two proven models assessment led expansion delivering 60 to 75% cycle time reduction in work streams such as due diligence for private equity clients and application as well as data modernization initiatives across organizations Outcome based managed services with end to end accountability to deliver measurable business and operational impacts.
Let me share an example of what SALSQA achieves for our clients. For a global bank based in Europe, we assessed the complex millions of lines of legacy code which led us to win the full blown engagement of transformation to the modern technology stack. This engagement required on premise deployment which not only understood the domain but also comprehended the complexities within their banking landscape. Our SASSO platform helped us decode the legacy logic which is otherwise scattered across the enterprise.
It then helped us arrive at the modern technology based solution along with the overall transformation plan while preserving mission critical continuity and targeting around 22% productivity as well as time to market improvement. Our recent partnership with DigitalOcean and Anthropic are accelerating this scale out further. DigitalOcean strengthens our footprint for private cloud and sovereign deployments while Anthropic enhances access to frontier models. Our IP portfolio continues to expand for SASWA with now having 105 patents filed including 30 in the last quarter along with over 20 research publications.
Our first open source MLX solution on Apple Apple Silicon delivers virtual LLM style performance significantly reducing cost and latency for agent driven inference. These assets strengthen our competitive position in enterprise AI and accelerate development across the software development lifecycle. In business Hyper productivity, we continue to reimagine end to end workflows as self orchestrating ecosystem of AI agents powered by our domain driven reasoning engines. We cover the entire value chain of assessment to adoption to scale for agentic AI solutions with measurable business impact.
To share a recent success story for a leading life sciences client, we helped shorten their drug discovery cycle by using Genai Hub and Agent Studio. The solution involved AI enhanced biomedical knowledge graph designed specifically for their Crohn’s disease R D pipeline. The solution delivered a 60% uplift in data mining efficiency and drove up to 40% higher productivity in their drug discovery process. Our business Hyper productivity portfolio now comprises of 200 plus agents developed both in house and across our partner ecosystem including the likes of Google, Gemini Enterprise, Microsoft, AI Foundry, Salesforce, Agent Force, Nvidia and leading automation platforms such as UiPath, Appian and OutSystems.
This quarter we also launched the Agent Processing Unit to support onboarding and orchestration of external agents in our Agent Studio. Moving on to the enterprise data readiness which remains the single most important driver of scale AI adoption. Our platform oriented approach based on the pillars of responsible AI, agent data operations and workforce enablement continues to differentiate us. To share an example for one of the world’s leading global banks, we’re actively migrating a 25 years old legacy core data platform to a modern snowflake and AWS based data stack.
This engagement fully leverages multiple accelerators within our agenda Data platform IORA spanning across assessment, platform development, governance, observability and the migration itself. The result is stronger data outcome while fully addressing regulatory, governance and data sharing obligations and we are seeing overall program effort reduced by approximately 40%. On the technology front, our strategic partnership ecosystem across the likes of Google, Microsoft, Databricks, Snowflake and Kong continue to play an important role in accelerating AI adoption and expanding the enterprise impact for our clients.
In summary, we are delivering strong momentum in our AI initiatives and our execution continues to earn strong external recognition. Persistent has been awarded as Emerging Leader in Gartner’s Innovation Guide for Gen Consulting, Leader in ISD Provider Lanes for Generative AI and Leader in Everest Talent Readiness for Next Gen Data analytics and AI. I would now invite Saurabh to take you through the Key Deal wins awards and recognitions for the last quarter.
Saurabh Dwivedi — Head, Corporate Development & Investor Relations
Thank you Jaydeep. I will first talk about Key Deal wins for the quarter by industry segment segments starting with our software, high tech and emerging industries vertical Persistent was selected by a leader in next gen manufacturing and supply chain solutions for a 360 degree partnership across engineering, cloud operations, professional services and go to market collaboration. This strategic engagement involves SASVA led scale factory model for migrating end clients of the customer to cloud, native ERP ownership of AI, led engineering of the digital commerce product as well as transformation of its infrastructure and cloud operations.
Persistent was chosen by an edtech leader specializing in software and analytics for pre kindergarten to high school education domain to transform its customer success and tech support organizations. We will help the customer enhance productivity of its support organization and deliver seamless data driven customer experiences. Persistent was chosen by a global leader in materials purity and process control in the semiconductor industry to modernize its R and D architecture. As part of this strategic engagement we will deliver an end to end digital platform that will connect instruments, data and researchers working for the customer.
This integrated platform will transition fragmented and bespoke R and D efforts to a cohesive strategy and streamlined architecture that will accelerate product creation and decision making. This is a first of its kind strategic win in the material space science industry and will likely drive more opportunities in the broader semiconductor domain for Persistent moving on to banking, financial services and insurance. We were selected as a Strategic Partner by a leading global fintech and insurance firm following its recent acquisition of a major SMB payroll and HCM provider to modernize the acquired platforms.
Leveraging our proprietary SASA and Aurora platforms, we will re architect the payroll platform for easier maintenance, migrate HCM to Microsoft Azure for cost and performance optimization, build a secure scalable app marketplace and deploy governance automation and AI LED frameworks for predictive insights. We were selected as a Strategic partner by leading French multinational banking and financial services company to accelerate data platform migration and modernization. The partnership spans across three major initiatives building a global data factory, modernizing data operations with IORA and standardizing and automating the documentation.
Process Assistant’s expertise in data engineering and data modernization using the Databricks platform led to direct engagement with the customer bypassing a multi vendor rfp. A Tier one bank in the US Selected Persistent to support the Transformation program in its cybersecurity organization. The initiative drives improvement in data provisioning for monitoring and adherence, data leakage prevention and process optimization in the identity and access management space across all of its enterprise applications.
We are pleased to share that with this tier one banking customer we won a total of $100 million TCV deal this quarter which included 25% new TCV component. Moving next to our healthcare and life sciences vertical, Persistent was selected by a leading US based professional organization for pathologists and laboratory professionals as an end to end technology partner to modernize and manage apps, data cloud infrastructure and security. The benefits to the customer include automation of its information systems, support activities, reduction in technology debt and gradual migration to 100% cloud native technologies.
This is a $50 million plus engagement over five years and it’s one of the largest deals that we have signed in the pathology and laboratory automation domain. Persistent was chosen by a global leader in kidney and vital organ therapy to modernize and manage its IT infrastructure, delivering 24.7 multilingual support to automation, predictive analytics and self healing systems. This is another example of our established playbook where we build and manage a modern IT infrastructure for businesses which get carved out in private equity transactions.
Persistent was selected by a leading provider of patient support services, market access strategy and data driven analytics to life sciences and pharma companies to integrate its CRM systems and modernize its data platforms. This deal is unique as IT marks our first significant win in the Salesforce Life Sciences Cloud domain. Now coming to the awards and recognitions we received during the quarter, Persistent was recognized by Microsoft as a frontier firm for its leadership in innovation, earning a featured spot on stage and in Microsoft’s official lookbook.
Persician was recognized by Kantar Brands as one of India’s most valuable brands, ranking sixth in its category, a testament to the company’s brand strength, performance and business impact. Our leaders Dr. Anand Deshpande and Sandeep Kalran were jointly recognized by Fortune India as India’s best CEOs in the IT Services Mid Cap category for 2025 presented by Honorable Minister Piyush Poel. The award reflects disciplined execution and consistent ability to drive sustainable long term value. Our CEO Sandeep Kalra won the Impactful Large Enterprises CEO Award at the ETH India Impactful CEO Awards 2025 Persistent Earned 2025 ISG Star of Excellence Award for AI and Data with a CCX score of 92 highlighting our strong client impact, Persistent was named a leader in 2025 ist provider lens for Insurance Digital Engineering and Insurance Generative and Agentic AI Services.
Recognizing our AI powered insurance strength, Persistent was commended for building a future ready high performing talent ecosystem and has received multiple awards by leading organizations such as Everest Group, SHRM and tis. The details of these awards are available in our investor presentation with this, let me hand it back to Sandeep.
Sandeep Kalra — Executive Director & Chief Executive Officer
Thank you Sourabh. Let me conclude our prepared remarks by saying we are happy with the consistent performance that we have been able to deliver in the quarter gone by combined with our progress on the AI LED Platform driven Standard Operator. With this let’s open the floor for questions.
Questions and Answers:
Operator
Thank you sir. We will now open the call for Q and A session. We will wait for few minutes until the queue assembles. We request participants to restrict to two questions and then return to the queue for more questions. Please raise your hand from participant tab on the screen to ask the question. The first question is from Mehta Bhavik.
Bhavik Mehta
Hi, thank you. So a couple of questions. Firstly Sandeep, can you talk about how the demand environment has changed in the last three months across different verticals? And second question is on margins. It’s good to see the combination of using AI tools and people is helping the margins to an extent. How much juice is left over here in terms of, you know, margin tailwinds over the next 18 to 24 months?
Sandeep Kalra
Here were to look at your first part of it, the demand side of it. So if we were to go vertical by vertical, the good part is that we saw in the last three to four months a significant amount of discussions on application and data modernization when it came to Healthcare Life Sciences or bfsi. We also saw in Healthcare Life Sciences a good amount of, you know, discussions on transformation programs in mid to large firms. In high tech we saw adoption of AI in terms of doing product development related productivity in terms of private equity we saw further inroads into using AI to get end to end programs.
And that’s where when Vineet talked about it we were able to showcase our technology right from Doing an assessment and proving to the private equity firms as well as their portfolio firms that we can do things with much better productivity and long range savings are significantly higher. Those are the kind of tailwinds that we saw. We were able to open many new logos and these logos, while we have won some very good deals, they have a good propensity over a period of time to grow with us. That’s at a high level where we saw the demand environment.
Now if you were to look at the margin side of it, obviously when we are able to use our technology to deliver better productivity, we are able to monetize the platforms like you know, sasa, Iora, ji, Hub and that’s what we saw having a impact on the market as far as the future is concerned. We don’t give forward guidance. So I just pause it there. Happy to take any questions
Bhavik Mehta
That’s helpful, thank you.
Operator
Thank you. The next question is from Sandeep Shah.
Sandeep Shah
Thanks. Thanks for the opportunity and congratulations on a very good set of numbers. Sir, I have two bookkeeping questions. So if I look at the nature of the software license revenue growth in this quarter, it has gone up by 40% Q on Q and if I strip out from the total revenue, the services revenue has gone up by 2.6%. So how to read this line of software license revenue growth and the second related question to Vinit, sir, on the balance sheet if I look at the intangible assets under development, it has been increasing so it constitute 1% of the revenue but it has increased incrementally by 50 bips for the last two years.
So what is the nature of these capitalization on the balance sheet?
Sandeep Kalra
I’ll take the first question and I’ll have Vineeth answer the second question. So as far as the software licenses are concerned, there are three different high level, two different components. On one side these are software licenses that are third party software licenses where if we are doing, let’s say cyber security related managed services or overall managed services and we need certain licenses which are getting passed through us with certain margins, that’s first part of it and they are important for us to stitch together the technology stack that we take to market in order to, you know, win deals and so on.
The second part of it is where we have our own technology stack whether it is Iora, Geni, Hub or sasa. More and more we are not pricing, you know, things in a way that we are taking these things as independent sales, these are integrated sales and the timing of the revenue recognition will depend on how these are priced. So overall, the combination that you see, if you see the 2.6% that you’ve quoted on services, I would want to say over a period of time, the size the IP and services will get clubbed together and these lines will blur.
Second part on the bookkeeping. Yeah.
Vinit Teredesai
So Sandeep, in terms of the intangible assets that you are seeing on the balance sheet, as we called out, that we have been heavily investing into developing new AI tools, productivity tools, SASVA platform, IRA, etc. As a result of that, you’re seeing the increment that is happening on the intangible assets? I think so it has. They are now at a pretty good amount of maturity level whereby these growth in these intangibles will sort of not be at the same level as what you have seen in the past. The good part is we are also being able to sort of link and generate revenue out of it.
It sort of justifies the capitalization that we are seeing at this point of time.
Sandeep Shah
Okay, thanks. I will come in the follow up.
Operator
The next question is from Sukrit Patil.
Unidentified Participant
The team. Am I audible?
Operator
Yes, yes,
Unidentified Participant
Thank you. I have two questions. As persistent continues to scale in data cloud and digital engineering, what specific initiatives are being prioritized to deepen the client relationships and expand into new verticals over the next 12 to 18 months? How do you see the company positioning itself to sustain this growth momentum while navigating evolving labor and regulatory frameworks? That’s my first question. I’ll ask my second question after this thing. Thank you.
Sandeep Kalra
Yeah. So if you were to look at it Sukrit, the data cloud, digital engineering, that’s exactly where we are investing. So if you look at our investments in building SASA over the last, let’s say 24 months plus, that basically is in the product development life cycle. So it’s at the cusp of digital engineering, whether it’s new product development, whether it is taking over products, sustaining them at a better effective productivity, or doing even things like professional services, customer support 99 taken to the enterprise that helps us in even doing application modernization, re engineering programs that were not possible earlier earlier and so on.
So there’s a significant amount of things that we are doing with SASBUR there. Similarly, on the data side, some of the work that we’re doing with even Fortune 100 customers or Fortune 50 and even bigger customers is on the data side where we are investing in building our components around Iora. Jaydeep talked about how we have used the technology to build even 200 plus agents that can help us in modernizing the landscape of a larger enterprise using these tools, taking them from legacy to modern kind of platforms and so on.
So there’s a significant amount of IP capability case studies that we have which we are taking to our top 100 customers. And if you look at our top 100 customers, they give us close to 82% of the rent and they are growing today at about 20% plus. So there’s a significant amount of bringing all of this together, customer being at the center of it and adding more value there. And we are confident whether it’s 12 to 18 months, this is an ongoing journey. We are confident this should lead to good growth as we go along.
Unidentified Participant
Thank you. My second question is with EBIT margins resilient despite the one time labor code impact, how are you planning to balance cost discipline with investments in talent and technologies? Could you outline how the company is approaching capital allocation to support both shareholder returns and long term growth? Thank you.
Sandeep Kalra
Yeah. So if you were to look at it, you know, the total shareholder return is a function of what we deliver as growth and it leads to capital appreciation on one side. On the other side, we have had a very healthy dividend payout ratio. So if you look at even our current, you know, announcement that we have done last year, interim dividend, if I’m remembering it right, it was 20 rupees, today it is 22. So it has also increased. So from that perspective, our continued investment in talent leads to market share gains, leads to our ability to have both the capital appreciation as well as the dividend payout ratios and take care of our investors in the long run while delivering value to our customers and their employees.
Unidentified Participant
Thank you for the guidance and I wish the entire team best of luck for next quarter.
Sandeep Kalra
Thank you.
Operator
The next question is from NTN Puranik. Mr. Purana, can you unmute yourself? Okay, we’ll move to the next question. The next question is from Nitin Padmanapan.
Nitin Padmanabhan
Hello, good evening. Wishing all of you a very happy new year and congrats on a solid quarter. Sandeep, need your advice on or maybe better understanding on this. So this quarter there’s a 150bps improvement in margins because of tools and pricing. Tool driven pricing models. Right. How should we think about this? Logically, because one, it’s a big margin jump in a single quarter. Second thing is that is this for a specific large project where there was a large accrual this quarter or because people normally would tend to sort of extrapolate this linearly so, better sort of thought process.
How should we think about this? And the second thing is this obviously should have led to higher fixed price. We don’t disclose that. But is that a fair understanding? And going forward, when you think about this, over a period of time, you will have competition who also builds these tools and accelerators and stuff. So at that point of time, do you think this gets sort of commoditized in some way and just comes off or should this be a sustainable kind of margin that it will pull up? Right, that was the first one and the second one was for Vineet.
This quarter we announced 1.1 million sort of share that we have sort of issuing to the ESOP Trust. How should we think about the impact on margins as we get into next year from that? Specifically? Yeah, these were the two questions. Thank you.
Sandeep Kalra
So Nitin, first of all, this 150 basis points improvement that you have seen, it’s not on account of one deal. So there are multiple deals that we have won using the Saswa side of it, IORA side of it. There are AI upside of it. Certain things my colleague Jaydeep covered when he talked about the AI. Now if you look at these wins, some of these wins are scaling as we speak. And the way the business model in some of these things is when we are bringing our tool and ip we are monetizing some amount up front end.
Some amount is basically through the productivity that get by deploying lesser number of people because we are using the technology. So we have to monetize this technology because we are investing on the other side as well. The earlier question about, you know, intangibles etc eludes to that. So we are trying to be prudent on one side, we invest, on the other side, we harvest. So that is the combination. Now as far as the competition is concerned, it will be a very healthy competition to have if everyone starts building tools, accelerators.
It will also keep us on our toes. Today we have a head start and we believe with our continued investment we should be able to manage our competitive differentiation. We are investing on an ongoing basis, so happy to have more competition. But from our perspective we have won significant deals. Those should fuel more deals showcasing these deals with other customers. So. Do
Nitin Padmanabhan
You think this sort of improves the 200 basis points that you originally thought of? You think this sort of gives a further leg up versus what you originally thought?
Sandeep Kalra
So look, there is only this much that we want to squeeze out of the system. We want to be able to reinvest to your point, making sure that we are ahead of the curve with respect to the technology progress in our competitive landscape. So we are not aspiring now to take it another 200% up, 200 basis points up. We are happy where we are reaching and I think we have proven to the world we can achieve the margins we have to. And we should put this to rest, make sure that we are a growth engine for the timestamp.
Nitin Padmanabhan
Perfect, thank you.
Vinit Teredesai
And Nathan, your other question with reference to the ESOP, 1.1 million shares that have been allocated. This is a part and parcel of the stock options of the RSUs that have been granted in the past. And as a result of. And as a result of that, the cost that needs to come in as per the Life Schools valuation methodology is being factored in. We have called it out. These are not anything new, substantial that we have granted in the recently. So whatever we have said in the past, there was a cost that came in, in FY25, there is a reduction in cost that is happening in FY26.
There will be a further reduction in cost that will happen in FY27.
Nitin Padmanabhan
Perfect. Very helpful. Thank you so much and all the very best.
Operator
Thank you. The next question is from Abhishek Pathak.
Abhishek Kumar
Hi. Hello. Hi. Am I audible?
Operator
Yes, please.
Abhishek Kumar
Yeah, yeah. Hi. Hi, Sandeep. Just a couple of questions. Firstly, you know, the kind of tools or partnerships you know, we are kind of showcasing in AI, it looks like our client base is kind of, you know, slightly more mature in the sense that we’re talking less about the foundational stuff and more about sort of AI implementation, which probably happens beyond the POC stage and, you know, beyond when the clients have already sorted their, their data and foundational sort of limitations. Right, so how’s that happening?
I mean, is our, is our client base just more mature or is the quality of sort of clients, you know, just that much more better? That’s the first question. And secondly, you know, on margins, I guess it’s a very interesting case because while you highlight, you know, 150bps of margin improvement because of internal tools, the revenue per employee has kind of been a little bit flat over the last, let’s say three, four quarters. So how should we sort of reconcile sort of these two, these two numbers and to that point, if at all, all the internal sort of tools, you know, kind of improve, let’s say, going forward as well.
Is there more margin juice coming from higher revenue by employee going forward or, or no. So those are the two. I see Vineet smiling, but I, I Hope the questions are slightly more relevant than that.
Sandeep Kalra
So we’ll just, we’ll just keep it high level in 10 minutes in the call but I will answer it at a high level. The revenue per employee. If you were to factor out the impact of the one time thing that we talked about, you will see a certain different thing than what you’re seeing right now. Now obviously you know, the intent here is build better technology, leverage it to deliver more productivity per NY so that our, you know, revenue and headcount have a breakage from the linear correlation that is a traditional tech services world.
We’ll let it pan out. This is going to mature over a period of time and I’m hopeful that it will move in the right direction. Now you talked about the client base more mature beyond POC stage. Look in our industry and if you look at our top 100 customers, they give us 82% of our revenue. We are trying to go deeper. We’re trying to understand their business challenges better. We’re trying to take our technology in the context of their business challenges, doing proof of concepts, sometimes even a number of these are proactive and so on, proving to them that we have the technology that can solve for their business problems.
So it is not about selling a model versus another model. It is about understanding what is the business issue that we are trying to solve for what is the right tool to bring, whether it’s our tool or a partnership. And as long as we can prove we are able to win the business. And if and in, in one of the case studies that jadeep highlighted, this is a fairly large European bank. They were struggling to solve for a particular problem. For last several months we did a proof of concept which was about three weeks we could prove to them that we can solve it.
And it landed up in a pretty decent multi year deal for us. So it’s not about mature customers or immature customers. It’s about understanding, taking out things, working with them, handholding them into this.
Abhishek Kumar
Thanks Sandeep. And if I could just squeeze in sort of one last question around the high tech vertical. Some of our larger peers have indicated that you know, spends are currently kind of, you know, tied up in Capex and there’s, there’s little room for sort of the services or the software stack of. It looks like our high tech vertical seems to be kind of defying that, that particular trend. So just again just very curious what we are doing differently, what are we selling differently? Where our high tech clients are kind of, you know, coming in and prioritizing the Software stack in addition to the capex sort of spends that they’re obviously doing.
Sandeep Kalra
Sure. So if you look at traditionally where persistent has played in the high tech market versus a number of our peers are playing in the high tech market, number of our peers address what is the typical IT part of the high tech, your customer. We are at the core of the engine. We are in the product development and the related side of it, whether it is doing professional services, customer support, 9 yards. So if you look at it, the technology that we are building, the the business model that we are taking not just directly to the company but also customizing it.
If it is a private equity held company, what are they trying to solve for? If a private equity company is trying to carve out a smaller company from a bigger tech company, trying to, you know, stand up these guys as a independent company on one side, yeah, we can do the stand up of greenfield IT&DO managed services. But more importantly, how do we help them take the modern tool set from a product development perspective, accelerate their product development, squeeze out costs from their mature products and so on.
So our pitch is very, very different. Very differentiated in the high tech space as compared to most of our competition.
Abhishek Kumar
Got it. Thanks for all the best.
Sandeep Kalra
Thank you.
Operator
Thank you. The next question is from Vibor Singhal.
Vibhor Singhal
Hi, thanks for taking my question and congrats on our solid performance yet again. Just two questions from my side, one for Sandeep and one for Vineet Sandeep. Just on the healthcare vertical. In the, in the past you had mentioned that this year you anyways expect BFSI and HiTech to lead the growth and it’s playing out pretty much in the same manner. But how has the high tech vertical, overall demand environment kind of played out over the past two quarters? The big beautiful bill of course is behind us in terms of how clients are looking to change their spends in this vertical and more importantly the payers in providers.
Where do you see a higher delta or a higher growth potential in the coming quarters and then I’ll have a follow up with you.
Sandeep Kalra
Sure. So in the middle you talked about high tech vertical. I’m assuming your question was on the healthcare vertical.
Vibhor Singhal
Oh, I’m sorry, I think I managed healthcare vertical.
Sandeep Kalra
That’s fair. So if you look at our healthcare vertical, we are very pleased with the way we have seen the demand shape up. Partly it is the market and I would credit our team more than just the market dynamics for getting to the right audience, understanding their imperatives and the kind of wins that we have highlighted that SAURABH talked about a number of them are new logos in addition to the expansion in the existing accounts as well. Now if you look at it, you talked about the payer provider ecosystem.
Actually if you look at our wins they are in the payer provider tech side of the house, provider side of the house, pharma side of the house and so on. So. So it is fairly broad based and a number of them are forward looking programs. So it’s pretty heartening and I’m pretty hopeful Healthcare should do well with time.
Vibhor Singhal
Got it, got it. That’s really helpful. Siddiq, we need just one question. Just wanted to understand the accounting part of the 150 basis point margin expansion that we have reported. Because of the platforms and the pricing, how does this work? So basically the work that we did in this quarter, we’ve booked that benefit in this quarter and next quarter we have again to decide and this might be 100 basis point or 50 basis point or 0 next quarter or does it get built into the base and that basically flows for the life of the project or the next milestone is reached.
How does this work?
Vinit Teredesai
So without getting into the details of specifics of what happens, as we said there is a combination of multiple deals that basically have a component of certain license and services. Sometimes there is a component of license that comes in in terms of the revenue play because that gets delivered and gets recognized. Sometimes it’s over a period of the entire contract because it’s not specifically identified. So the commercial construct defines how we recognize the revenue. If there is a specific call out, the customer wants a license, it comes into it.
If there is a, if it is embedded as a part and parcel of our services, it happens over a period of time.
Sandeep Kalra
Just to add this, so just think about it, there are different kind of customers in the market. If there’s a private equity customer who basically has done a new core from a carve out basis and we are involved in engineering, they have a certain way that they want to do the upfront investment etc. It also our business model has to dovetail into what our customer wants. So depending on that, you know the revenue recognition is also a form of what the customer wants, how we are implementing the technology, how it is embedded, whether it’s an outcome based end to end and so on.
So it, it varies.
Vibhor Singhal
Right? So just to maybe just let the last part to harp a bit more of this. So this basically gets built into the base going forward and hereafter we could have more of such projects or some of these projects going out also, it can go either ways in terms of the margin benefit for specifically projects. Absolutely,
Vinit Teredesai
Absolutely. Got
Vibhor Singhal
It, got it, got it. Thank you so much. I will just
Vinit Teredesai
Add to that our endeavor will be to have more and more such deals so that we get a revenue predictability over a period of time.
Vibhor Singhal
Got it, got it. Thanks a lot for taking my questions and wish you all the best.
Operator
Thank you. Thank you. And the last question will be from Ravi Menon.
Ravi Menon
Thanks for the opportunity. Congrats on a good quarter. I had a question about this last deal that you mentioned for modernization with a bank. Explain what the sort of productivity benefit that you’re getting in this mainframe modernization is it, you know, like about 20%, 30%? I think you mentioned a number, but just want some clarity on that. And second is on this, the platforms that you have for the cyber productivity, you put in GitHub, copilot, cursor, windsurf, stuff like that. And are you seeing your customers actually adopt multiple platforms or are people pretty much standardizing on using one platform?
And what sort of productivity benefits are they seeing on their own without your IPs coming in?
Sandeep Kalra
Sure. So. So I’ll try and keep it brief. We are at 6:58, we have two minutes. So as far as the productivity benefit for the mainframe modernization, or I will just keep it at application modernization or platform modernization. So see, it’s not just about how much effort, effort is one part of it. But there are a number of these programs where people were not able to reverse engineer manually the business logic of these platforms because these were built over the last 20, 30 years and people have gone.
It’s very, very difficult. Using our platforms we are able to get to 60, 70% of reverse engineering of business logic, convert that to even an English document so that the business users can understand. And by doing this, we are able to get them off of legacy platforms, legacy technologies, onto modern platforms which are much more nimble, agile. Maybe there’s a duplication of things that has happened over a period of time. The licensing cost goes down and there are many other things like regulatory, ease of explanation and so on.
And so the benefits are far, far more than just a productivity gain. Now on the second side of it, Cursor, Windsurf, Copilot. So many of our customers are adopting one, some of the larger customers are adopting two or three as well. One of our largest fintech customers is a big time user of two of these platforms in conjunction with each other. And we are also a part of their ecosystem. So it is their own team as well as us who are using these tools. And from a coding perspective, just the code part of the software development life cycle, people are able to get 20 to 25% benefit using these kind of tools from the code part of it.
Hopefully that answers.
Ravi Menon
Thanks so much. But since that’s only just one part of the SDLC overall, is it fair to say that productivity benefit is something that people should not worry about too much?
Sandeep Kalra
Yeah, that’s exactly where. That’s exactly where our platforms like sasva come in. Because when we bring in saswa, we are talking of right from requirement gathering to grooming it into a technical kind of backlog, to doing the implementation in terms of coding, release management, nine yards and then even doing things like maintenance after that and so on. So all these tools are very good, but they solve for a sliver of the entire software development lifecycle and that leaves a lot of scope for people like us to develop our platforms with me, we may even integrate with these tools as a part of our platform.
Ravi Menon
Thanks so much. Best of luck.
Sandeep Kalra
So with this, I think we should close the call. So just to summarize, we are confident of our progress on the technology side. We are happy with the performance that we delivered in this quarter and we are confident of continuing the growth momentum going in. Look forward to giving you an update in three months from now. Thank you. Thank you, operator. Please close up.
Operator
Thank you very much to Persistence Management Team. Ladies and gentlemen, on behalf of Persistence Systems Ltd. That concludes today’s conference. Thank you for joining us and you may now disconnect your line and exit the webinar. Thank