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Improving Execution and AI-led Transformation Drive Medium-term Growth Prospects:

Q2FY27 witnessed improved execution and sustained AI-led deal momentum driving stronger revenue visibility. Direct revenue grew 3.5% QoQ and 11.3% YoY in CC terms and prompting the management to upgrade FY27 revenue growth guidance to the low double-digit range. Mphasis Tria is emerging as a strategic growth lever, expanding the company's addressable market beyond traditional IT services into business process transformation and outcome-based engagements. Sustained deal momentum, with net new TCV at USD 466 Mn and AI-led opportunities accounting for 71% of the pipeline, further strengthens growth visibility. While AI-related investments, higher onsite deployment and acquisition integration cost may constrain near-term margin expansion; positioning Mphasis to capture a larger share of enterprise AI spending. This reinforces our constructive view on Mphasis; hence, we value the company at 20x avg. FY28–29E EPS, revising our target price to INR 2,860 (from INR 2,520 earlier) and retain our ‘ADD’ rating

Healthy Revenue Growth; AI-led Deal Wins Support Business Momentum

* Mphasis reported Q2FY27 revenues in INR 45,809 Mn, up 4.5% QoQ and 17.4% YoY (vs CIE estimate of INR 46,286 Mn). In CC terms, revenues grew by 3.3% QoQ and 9.7% YoY.

* EBIT stood at INR 6,774 Mn, up 4.5% QoQ and 13.7% YoY (vs CIE estimate of INR 6,813 Mn). EBIT margin came in at 14.8% for Q2FY27, flat QoQ and down 48 bps YoY (vs CIE estimate of 14.7%).

* PAT for the quarter came in at INR 5,611 Mn, up 14.6% QoQ and 19.6% YoY (vs CIE estimate of INR 5,177 Mn).

Growth Momentum Accelerates; Strong Deal Wins Drive Guidance Upgrade:

Mphasis delivered a strong Q2FY27, with direct revenue growing 11.3% YoY and 3.5% QoQ in CC term led by strong deal conversion, backlog execution and increasing traction in AI-led transformation engagements. This prompted the management to upgrade FY27 CC revenue growth guidance to the low doubledigit range. AI-led opportunities now account for 71% of the record pipeline (up 23% YoY), while net-new TCV stood at USD 466 Mn, taking TTM TCV to USD 1.8 Bn. AI-led bookings contributed 66% to Q2 TCV wins, alongside five large deal closures, including a multi-year recurring revenue-share engagement with a major broker-dealer. Growth was broad-based across BFS (+15.0% YoY CC), Insurance (+14.7%) and TMT (+14.5%). Overall, sustained deal momentum and rising AI-led traction improve revenue growth visibility, although pipeline conversion and Tria monetisation remain key monitorables.

Margin Stable; Growth Investments and Cash Conversion Remain Key:

Mphasis maintained a stable EBIT margin of 14.8% in Q2FY27, within its FY27 target range of 14.75%–15.75%. Margin expansion remained constrained by onsite-mix shifts in short-cycle AI engineering projects, acquisition-related integration and amortisation cost and investments in sales coverage, talent certification and platform IP. The management prioritised revenue growth and market-share gains over margin-optimisation, while reiterating its FY27 EBIT margin guidance. Operating cash flow stood at USD 34 Mn, impacted by USD 39.5 Mn of delayed customer collections, with the management maintaining its ~80% FY27 OCF-to-PAT conversion target and expecting working capital and cash-generation to normalise in H2

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