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Mphasis reported inline performance for the quarter. Both, revenue and EBIT margin were as per estimates. It reported revenue of Rs 35.4bn( up 3.3% QoQ in INR terms, up 2.7% QoQ in USD terms). Segment-wise, BFS grew by 3.6% QoQ, Insurance grew by 2.3% QoQ, TMT grew by 6% QoQ; while Logistics and Transportation was down 1% QoQ. Direct now contributes 95.8% ( flat in % contribution QoQ) of revenue ,while DXC contributes 2.7% of revenue. EBIT margin increased by 39 bps QoQ to 15.4%, led by control on direct costs. New TCV win was at $207mn ( with 88% of deal wins in New Gen Services) vs $319mn in Q1FY25. Offshore revenue mix was down 20 bps QoQ to 42.7%. Total headcount was down 44 employees QoQ to 31,601 employees. Cash & equivalents of Rs 31.7bn vs Rs 43.1bn as of June'2024. It is witnessing some pickup in TCV to revenue conversion with some increase in short duration deals. Deal pipeline remains strong, well distributed across verticals, with 35% being AI led deals. Management has guided for EBIT margin of 14.6% to 16% band for FY25. It is witnessing higher traction in Generative AI solutions with significant number of AI solutions going mainstream. We expect Revenue/EBITDA/PAT to grow at 11.5%/12.1%/14.0% over FY24-FY27E. We have revised our FY25E/FY26E/FY27E EPS by (0.9%)/(1.3%)/NA. We roll over to Sep’26 estimates for valuation and maintain REDUCE Rating on the stock with revised target price of Rs 3,103 (vs Rs 2,957 earlier) at PE of 27x on Sep’26E EPS.

Revenue for the quarter was inline with estimates

It reported revenue of Rs 35.4bn( up 3.3% QoQ in INR terms, up 2.7% QoQ in USD terms). Segmentwise, BFS grew by 3.6% QoQ, Insurance grew by 2.3% QoQ, TMT grew by 6% QoQ; while Logistics and Transportation was down 1% QoQ. Direct now contributes 95.8% ( flat in % contribution QoQ) of revenue ,while DXC contributes 2.7% of revenue. There has been some improvement in TCV to revenue conversion with some pickup in volume of mortgage related deals. The near term growth would be driven by BFS and TMT verticals. Deal pipeline remains strong, well distributed across verticals

EBIT margin improved sequentially

EBIT margin increased by 39 bps QoQ to 15.4%, led by control on direct costs. It has guided for EBIT margin of 14.6% to 16% band for FY25. The focus is on driving investments to drive business growth with broadly stable margin. Margin levers such as improving employee pyramid, high utilization, falling attrition would continue to support margin in near term

Maintain REDUCE rating on the stock with target price of Rs 3,103/share

The near term demand environment remains challenging as discretionary tech spending has been muted. We expect gradual revival in the mortgage business. AI led deals form significant part of deal pipeline and would be key driver of incremental revenue growth. We expect BFSI and TMT verticals to drive business growth going ahead. EBIT margin would be in 15-16% band for FY25E. We expect Revenue/EBITDA/PAT to grow at 11.5%/12.1%/14.0% over FY24- FY27E. We have revised our FY25E/FY26E/FY27E EPS by (0.9%)/(1.3%)/NA. We roll over to Sep’26E estimates for valuation and maintain REDUCE Rating on the stock with revised target price of Rs 3,103 (vs Rs 2,957 earlier) at PE of 27x on Sep’26E EPS.

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