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
Debashis Singh — Chief Information Officer
Jaideep Vijay Dhok — Chief Operating Officer – Technology
Analysts:
Bhavik Mehta — Analyst
Sandeep Shah — Analyst
Unidentified Participant
Nitin Padmanabhan — Analyst
Abhishek Pathak — Analyst
Vibhor Singhal — Analyst
Ravi Menon — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Persistent Systems Earnings Conference Call for Third Quarter FY ’26 ended December 31st, 2025. We have with us today on the call, Dr. Anand Deshpande, Chairman and Managing Director; Mr. Sandeep Kalra, Executive Director and Chief Executive Officer; Mr. Vinit Teredesai, Executive Director and Chief Financial Officer; Mr. Jaideep Dhok, Chief Operating Officer; Debashis Singh, Chief Information Officer; and Mr. Saurabh Dwivedi, Corporate Vice President, Finance and Strategy. [Operator Instructions] Please note, this conference is being recorded.
I now hand over the conference to Mr. Saurabh Dwivedi. 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. Vinit will take you through the financial details and key operational metrics for this quarter. Debashis, our Chief Information Officer, will highlight how we are using AI internally at Persistent as customer zero. Jaideep will provide you an update on how we’re 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&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 by. 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 12-month basis, our revenue stood at $1.6 billion. This marks our 23rd sequential quarter of revenue. 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 margin. 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. Vinit, 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 USD674.5 million with the total contract value of new bookings coming in at USD369.1 million. Annual contract value of bookings for the quarter is USD501.9 million, out of which the ACV from new bookings contributed USD255.8 million.
As always, both the TCV 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 multiyear deals booked in previous years, which are included in our total contract value or TCV bookings that we announced 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 buckets with our top 5 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 USD75 million increased from three to four on a year-on-year basis. Customers with USD50 million plus annual revenue remained stable at four. Customers in USD20 million plus category increased from 10 to 12, those in USD10 million-plus category increased from 22 to 28 and the customers in USD5 million plus category saw a significant increase from 47 to 61 over the last [Indecipherable]. Customers in USD1 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, hi-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’m pleased to share with you that the Board of Directors has declared an interim dividend of INR22 per share on face value of INR5 per share. 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 hurdle. The hurdle 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 offsite, we not only charted our priorities and focus areas for FY ’27, also assessed our progress towards our long-term aspiration of reaching $5 billion in annual revenue by FY ’31 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 2030.
With this, I conclude my prepared remarks and would like to invite Vinit, our CFO, to give a detailed color on quarterly financials and related matters. Vinit, 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 by. Q3 FY ’26 revenue stood at USD422.5 million, registering a year-on-year growth of 17.3%. In rupee terms, it translates to INR37,782.1 million, growth of 23.4% year-on-year.
EBIT margin for Q3 FY ’26 came in at 14.4%, 50 basis decline year-on-year. EBIT for this quarter was INR5,427.5 million, translating to a growth of 19.1% year-on-year.
Let me now give you a quarter-on-quarter EBIT margin walk-through. Starting with the tailwinds this quarter. Favorable currency movement 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 on-site, pyramid rationalization and SG&A 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. A 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 points.
In terms of headwinds, as we have mentioned last quarter, wage hike awarded to employees effective October 1, 2025, has resulted in a headwind of 180 basis points. In addition, there was a onetime impact of 230 basis points on EBIT margin on account of increased provisioning for gratuity and leave 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 points this quarter. All these headwinds and tailwinds put together have resulted in a 190 basis point impact on our EBIT margin on a quarter-on-quarter basis. Excluding the one-time impact of Labor Code, our EBIT margin would have been 16.7%, a 40 basis point improvement over Q2 FY ’26.
Other income, net of finance costs stood at INR300.6 million as against INR58.9 million in Q2 of FY ’26. Increase in other income was primarily due to earn-out credit of INR129.8 million from one of our recent acquisitions.
Foreign exchange loss of INR78.2 million this quarter as against a gain of INR272 million in Q2 of FY ’26 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 FY ’26 will be in the range of 22% 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 INR4,394.5 million, a growth of 17.8% year-on-year. This translates to a PAT margin of 11.6%.
Earnings per share was INR28.20 per share in Q3 of FY ’26 compared to INR30.30 per share in previous quarter. Year-on-year growth in EPS was 16%. Excluding onetime impact on New Labor Codes, our PAT 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 Q3 FY ’26 came in at 43.8% versus 45.5% in the previous quarter. Total cash and investments stood at INR29,046.5 million as of 31st December 2025.
In this quarter, billed DSO came in at 57 days, while unbilled DSO came in at 24 days. Billed DSO increased by three days and unbilled DSO increased by three days compared to Q2 of FY ’26.
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 PAT ratio were driven by collections spillover to the first week of January due to the holiday season for certain customers. Forward contracts outstanding as of 31st December 2025 were USD490 million at an average rate of INR89.1 per dollar.
Let me now give you some operational updates. At the end of Q3 FY ’26, 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 the 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’m pleased to announce that our S&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 Debashis for commentary on AI progress.
Debashis Singh — Chief Information Officer
Thank you, Vinit. I am pleased to join all of you today. My name is Debashis Singh, and I serve as the Chief Information Officer at 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 yearly 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 and responsible AI governance. What we consistently observed 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 truth.
The system of intelligence powered by Microsoft Azure Lakehouse, along with AWS, Google and Azure Fabric-based models provide consistent, accurate and trusted insights. AssistX, our system of action enables autonomous fulfillment through AI agents across sales, sales operation, legal, delivery excellence, finance, HR, IT, procurement and the talent supply chain. AssistX is governed by our AI management system aligned with ISO 2001, ensuring responsible and secure AI operation at scale.
At its core, AssistX is transforming how work gets done at Persistent. By eliminating manual bottlenecks and enabling autonomous fulfillment, it drives true enterprise hyperproductivity, enabling employees to focus on higher value decision-making tasks, while AI agents manage operational workloads. All AssistX agents are accessible within Microsoft Teams, providing a conversational experience with human-in-the-loop oversight.
To name a few examples, AssistX includes Navigate Assist and Renewal Assist in sales operations, Pi Assist and Carrier Assist in HR, IT Assist and Observability Assist in technology operations, Legal Assist and Contract Assist in legal. The breadth and the maturity 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 requests autonomously. IT Assist has reduced meantime to resolution for IT-related incidents from 3 hours to under 30 minutes, cutting manual workload by 70%.
To further extend this value, we recently introduced PAX, 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’s CEO, highlighted AssistX 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 Jaideep, our Chief Operating Officer, to discuss how we are progressing externally with our customers.
Jaideep Vijay Dhok — Chief Operating Officer – Technology
Thank you, Deb. Let me share a few updates on how we are helping our clients adopt and scale up AI with measurable outcomes. Our AI execution strategy is anchored around three strong pillars: AI for Technology focused on engineering hyperproductivity; AI for Business focused on business hyperproductivity; and enterprise data readiness along with responsible AI.
In engineering hyperproductivity, our AI platform for engineering SASVA 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 SASVA achieves for our clients. For a global bank based in Europe, we assessed their complex millions of lines of legacy code, which led us to win the full-blown engagement of transformation with 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 SASVA 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 SASVA 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 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 life cycle.
In business hyperproductivity, 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 hyperproductivity 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’s Agentforce 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 scaled AI adoption. Our platform-oriented approach based on the pillars of responsible AI, agentic data operations and workforce enablement continues to differentiate us.
To share an example, for one of the world’s leading global banks, we are 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 agentic data platform, iAURA, 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 GenAI Consulting, leader in ISG Provider Lens 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, Jaideep. I will first talk about key deal wins for the quarter by industry 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. The 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 AdTech 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&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&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 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 SASVA and iAURA 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 a 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 iAURA and standardizing and automating the documentation process.
Persistent’s expertise in data engineering and data modernization using the Databricks platform led to direct engagement with the customer by passing a multi-vendor RFP. A Tier 1 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 1 banking customer, we won a total of $100 million TCV deal this quarter, which included a 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 is 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 look-book. Persistent was recognized by Kantar BrandZ 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 Kalra, 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 Goyal, 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 ET Edge India Impactful CEO Awards 2025.
Persistent earned 2025 ISG Star of Excellence Award for AI and data with a CX score of 92, highlighting our strong client impact. Persistent was named a leader in 2025 ISG 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 TISS. 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, Saurabh. 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 strategy.
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&A session. We will wait for few minutes until the queue assembles. [Operator Instructions] 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 margin tailwinds over the next 18 months to 24 months?
Sandeep Kalra
If we 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 months 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 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 Vinit 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 SASVA, iAURA, GenAI Hub, and that’s what we saw having an impact on the margin. As far as the future is concerned, we don’t give forward-looking guidance. So I’ll just pause it there. Happy to take any other 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 constitutes 1% of the revenue, but it has increased incrementally by 50 bps for the last two years. So what is the nature of these capitalization on the balance sheet?
Sandeep Kalra
So Sandeep, I’ll take the first question, and I’ll have Vinit answer the second question. So as far as the software licenses are concerned, there are three different parts in them, if at 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, cybersecurity-related managed services or overall managed services, then we need certain licenses, which are getting passed through us with certain margins. That’s the first part of it. And they are important for us to stitch together the technology stack that we take to market in order to win deals and so on.
The second part of it is where we have our own technology stack, whether it is iAURA, GenAI Hub or SASVA. More and more, we are not pricing 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.
Vinit Teredesai
Yeah. 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, iAURA, etc. As a result of that, you are 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 the 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 also have been able to sort of link and generate revenue out of it, which 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
Thank you. The next question is from Sukrit Patil [Phonetic].
Unidentified Participant
[Technical Issues] team. Am I audible?
Sandeep Kalra
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 client relationships and expand into new verticals. Over the next 12 months 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. 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 SASVA 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 [Indecipherable].
Taken to the enterprise, that helps us in even doing application modernization, reengineering programs that were not possible earlier and so on. So there’s a significant amount of things that we are doing with SASVA 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 iAURA.
Jaideep 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 revenue, 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 months 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 onetime 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, 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 announcement that we have done last year, interim dividend, if I’m remembering it right, it was INR20. Today, it is INR22. 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 [Indecipherable]. Mr. Purana [Phonetic], can you unmute yourself? Okay. We’ll move to the next question. The next question is from Nitin Padmanabhan.
Nitin Padmanabhan
Hello, good evening. Wishing all of you a very happy new year and congrats on a solid quarter. Sandeep, need your advice or maybe better understanding on this. So this quarter, there’s a 150 bps 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’ll have competition who also build 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 Vinit. This quarter, we announced 1.1 million sort of share that we are 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
Sure. So Nitin, first of all, this 150 basis points improvement that you’ve seen, it’s not on account of one deal. So there are multiple deals that we have won using the SASVA side of it, iAURA side of it, then AI side of it. Certain things my colleague, Jaideep 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 upfront and 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 intangibles, etc., alludes 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 we’re 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 I…
Nitin Padmanabhan
Do you think this sort of improves the 200 basis points that you originally thought of? Do 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 or 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 times to come.
Nitin Padmanabhan
Perfect. Thank you.
Vinit Teredesai
And Nitin, 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 or the RSUs that have been granted in the past. And as a result of that, the cost that needs to come in as per the Black-Scholes 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 FY ’25. There is a reduction in cost that is happening in FY ’26. There will be a further reduction in cost that will happen in FY ’27.
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 Pathak
Hi. Am I audible? Hello. Hi. Am I audible?
Sandeep Kalra
Yes, please.
Abhishek Pathak
Yeah, yeah. Hi. Hi, Sandeep, just a couple of questions. Firstly, the kind of tools or partnerships we are kind of showcasing in AI, it looks like our client base is kind of slightly more mature in the sense that we are talking less about the foundational stuff and more about sort of AI implementation, which probably happens beyond the POC stage and beyond when the clients have already sorted their data and foundational sort of limitations, right? So how is that happening? I mean, is our client base just more mature? Or is the quality of sort of clients just that much more better? That’s the first question.
And secondly, on margins, I guess it’s a very interesting case because while you highlight 150 bps 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 numbers?
And to that point, if at all, the internal sort of tools kind of improve, let’s say, going forward as well, is there more margin juice coming from higher revenue per employee going forward or no? So those are the two. I see Vinit smiling, but I hope the questions are slightly more relevant than that.
Sandeep Kalra
Yeah. So we’ll just — so we’ll just keep it at high level. We have 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 onetime thing that we talked about, you will see a certain different thing than what you’re seeing, right now. Now obviously, the intent here is build better technology, leverage it to deliver more productivity per employee, so that our 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 gave us 82% of our revenue. We are trying to go deeper. We’re trying to understand their business challenges better. We are 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 one of the case studies that Jaideep highlighted, this is a fairly large European bank. They were struggling to solve for a particular problem for the 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 multiyear deal for us. So it’s not about mature customers or immature customers. It’s about understanding, taking out things, working with them, hand rolling them into us.
Abhishek Pathak
Thanks, Sandeep. And if I may just squeeze in sort of one last question around the high-tech vertical. Some of our larger peers have indicated that spends are currently kind of tied up in capex and there’s little room for sort of the services or the software stack of it. It looks like our high-tech vertical seems to be kind of defying 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 coming in and sort of 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, a number of our peers address what is the typical IT part of the 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, nine yards.
So if you look at it, the technology that we are building, 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 stand up these guys as an independent company.
On one side, yeah, we can do the standup of greenfield IT and 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 cost 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 Pathak
Got it. Thanks and all the best.
Sandeep Kalra
Thank you.
Operator
Thank you. The next question is from Vibhor Singhal.
Vibhor Singhal
Hi, thanks for taking my question and congrats on a solid performance yet again. Just two questions from my side, one for Sandeep and one for Vinit. Sandeep, just on the health care vertical. In the past, you had mentioned that this year, you anyways expect BFSI and hi-tech 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 spend in this vertical? And more importantly, the payers and 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 for Vinit.
Sandeep Kalra
Sure. So in the middle, you talked about high-tech vertical. I’m assuming your question was on the health care vertical?
Vibhor Singhal
Oh, I’m sorry. I think I meant the health care vertical.
Sandeep Kalra
That’s fair. So if you look at our health care 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 it is fairly broad-based and a number of them are forward-looking programs. So it’s pretty heartening, and I’m really hopeful health care should do well with time.
Vibhor Singhal
Got it. Got it. That’s really helpful, Sandeep. Vinit, 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 points or 50 basis points or 0 next quarter? Or does it get built into the base and that basically flows for the life of the project or until the next milestone is reached? How does this work?
Vinit Teredesai
So Vibhor, 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 when it comes into it. If there is — if it is embedded as a part and parcel of our services, it happens over a period of time.
Sandeep Kalra
Yeah. 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 newco 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, 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 varies.
Vibhor Singhal
Right. So just to — maybe just the last part to harp a bit more on 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 specific projects?
Sandeep Kalra
Absolutely,
Vinit Teredesai
Yeah. Got it. Got it. Thank you so much. I will just add to that. Our endeavor will be to have more and more such deals, so that we get 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. 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 large deal that you mentioned for modernization with a bank. Could you explain what the sort of productivity benefit that you’re getting in this mainframe modernization? Is it like about 20%, 30%? I think you mentioned a number, but just wanted some clarity on that.
And second is on 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 I’ll try and keep it brief. We are at 06:58. 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 bigtime 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, Sandeep. 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 our platforms like SASVA come in because when we bring in SASVA, we are talking of right from requirement gathering to pruning 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 this is all for a sliver of the entire software development life cycle, and that leaves a lot of scope for people like us to develop our platform, where 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 ahead. Look forward to giving you an update in three months from now. Thank you. Operator, please close the call.
Operator
[Operator Closing Remarks]