Add Mphasis Ltd For Target Rs. 2,805 - Choice Broking Ltd
MPHL reported Q4FY25 in-line with estimates
* Revenue for Q4FY25 came at INR 37.1Bn, up 8.7% YoY & 4.2% QoQ (vs consensus est. at INR 37.0Bn).
* EBIT for Q4FY25 came at INR 5.7Bn, up 11.7% YoY & 4.0% QoQ (vs consensus est. at INR 5.6Bn). EBIT margin was up 40bps YoY & flat QoQ to 15.3% (vs consensus est. at 15.1%).
* PAT for Q4FY25 stood at INR 4.5Bn, up 13.5% YoY & 4.4% QoQ (vs consensus est. at INR 4.4Bn).
Mphasis guides for a better FY26E than FY25 backed by strong TCV wins & steady conversion: Mphasis delivered a strong Q4FY25 performance with TCV wins of USD 390Mn, up 86% YoY, the highest in past 7 quarters. Notably, 59% of TCV was AI-led, highlighting AI’s rising impact. Q4FY25 revenue stood at USD 430Mn, growing 2.9% QoQ & 5.4% YoY in CC, its best sequential growth in 3 years. BFS & TMT sectors led growth due to recent deal conversions, while Insurance is expected to maintain decent growth momentum. For FY26E, Mphasis aims to outpace industry revenue growth, driven by strong TCV wins & steady deal conversion. However, we expect macroeconomic uncertainties may delay decisions in industries like Logistics & Transportation due to tariffs & trade dynamics. Sectors like BFS, Insurance, & Healthcare could face indirect impacts. With tech spending expected to stay flat, clients are focused on cost optimization aligning with the company’s savings-led transformation strategy to support the growth momentum. A favorable H2FY25 outlook may support growth, & strong deal wins in upcoming quarters might help achieve a better growth in FY26E than FY25.
EBIT margin guidance narrowed to 14.75% to 15.75% band: Mphasis maintained a stable EBIT margin of 15.3% in Q4FY25, reflecting resilience amid macroeconomic uncertainties. For FY26, it targets an EBIT margin between 14.75% and 15.75%, narrowing from the earlier 14.6% to 16% band. This refined range aligns with its strategy to balance growth investments and margin stability. Flexibility within the band allows for spending on upfront ramp-ups, technology, large deals, or AI platforms. Its track record shows strong cost management, enabling margin preservation even during revenue volatility. However, we anticipate a modest margin expansion to 15.6% by FY27E, we expect flat performance in FY26 due to the competitive macro environment in the near to mid-term.
View and Valuation: Consistent deal ramp-ups, coupled with strong deal wins in coming quarters & favorable economic outlook, might position Mphasis for better growth. While, its significant exposure to North America (80%) might delay growth, its savings-led transformation strategy will support growth momentum. As a result, we have reduced our estimates by roughly 3%, & project Revenue/ EBIT/ PAT to grow at CAGR of 7.9%/ 8.9%/ 9.1% respectively, over FY25-27E. We revise our rating to 'ADD' and raise target price to INR 2,805, implying a PE multiple of 26x (previously 24x) based on FY27E EPS of 108.0.
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