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Mphasis delivered an in-line operating performance in Q1. Revenue grew 1.6% QoQ to USD437mn (1% QoQ in CC), in line with our estimate, led by the momentum in BFS, Insurance, and TMT. Despite the sharp decline in Logistics and Transportation (-46% QoQ), strong growth in the rest of the portfolio helped to deliver in-line revenue growth, which is commendable in our view. EBITM stood flat QoQ at 15.3%, slightly lower than our estimate. The company recorded its highest-ever TCV of USD760mn in Q1; 82% of the deal wins were in new-gen services and 68% were AI-led. Mphasis won four large deals in Q1 (3 in the +USD100mn bucket and 1 deal above USD50mn). The management expects to grow at 2x the industry growth rate in FY26, based on its Q1 performance, robust deal intake and pipeline, and steady conversion of TCV to revenue. It aims to keep EBITM within its target of 14.75-15.75%, operating closer to the mid-point, while prioritizing growth and keeping margins intact. We largely maintain our EPS estimates over FY26-28E, considering the Q1 performance, and retain ADD with TP of Rs2,950, at 26x Jun-27E EPS.

Results summary

Gross revenue grew 1.6% QoQ (1% QoQ in CC) to USD437mn, in line with our estimate. Direct revenue grew 1.1% QoQ in rupee terms (1.6% in CC). EBITM was flat QoQ at 15.3%, coming in 10bps lower than our estimate. Among verticals, BFS, Insurance, and TMT grew 6.7%, 20.4%, and 2.5% QoQ in CC, respectively, while Logistics and Transportation and Others declined 46.2% and 1.5%, respectively. Within geographies, Americas and India reported 2.2% and 5.5% QoQ growth in rupee terms, respectively, while EMEA and the RoW declined 12.3% and 12.9%, respectively. EMEA’s decline is due to a ramp-down in global Logistics and Transportation customers. The BFS deal pipeline is up 47% YoY and non-BFS is up 108% YoY. Total headcount declined by 379/1.2% QoQ to 31,063. What we liked: The momentum in BFS, Insurance, and TMT; strong deal intake and pipeline (up 16%/84% QoQ/YoY). What we did not like: Softness in Logistics and Transportation, weak cash conversion (27% OCF/EBITDA).

Earnings call KTAs

1) The demand environment showed some resilience vs only selective strength in the last quarter. Decision-making continues to be more deliberate as enterprises navigate macro uncertainties. 2) Clients are re-prioritizing spending to focus on must-have capabilities, efficiencies, and cost-saving programs with a clear and measurable ROI. 3) Companies are funding AI initiatives by reallocating existing budgets instead of increasing overall spending. 4) BFS, Insurance, and TMT verticals continued their growth momentum. 5) BFS revenue growth was driven by wallet-share gains, growth in new accounts, and a ramp-up in new deals won in early Q1. 6) Insurance has turned into a growth engine and is expected to maintain its momentum, backed by strong TCV and pipeline. 7) TMT growth is driven by continued wins and conversion from the recent large deal wins to revenue ) Logistics and Transportation remains impacted by client-specific investment, though this is largely behind; Mphasis expects this vertical to gradually recover in FY26, with significant new deals in the pipeline. 9) Gross margin declined in the logistics sector due to a sharp revenue decline and customer-specific investments, although these were offset at the aggregate level by better utilization and margin improvements in other verticals. 10) Easing supply side pressures and a growing share of fixed-priced contracts enable higher productivity and ability to drive revenue with less headcount, leading to a divergence between headcount and revenue growth. 11) In terms of deals, Mphasis is seeing an increasing shift toward costtakeout and efficiency initiatives. 12) OCF in Q1 was impacted by a marginal delay in collections from one of the top customers due to changes in its internal systems (now resolved) and the annual incentive payout, which is typical in Q1. Adjusted for these, normalized cashflow comes to ~USD46mn for Q1. 13) ETR was higher in Q1 due to certain minimum tax expenses for certain subsidiaries which are likely to be normalized in the rest of FY26. 14) The company made a strategic minority investment of USD4mn for a 26% stake in Aokah Inc, a GCC advisory firm which aims to help shape deals as clients consider GCC alternatives. 15) Mphasis entered a framework agreement with Locate Software Inc to acquire its digital transformation business, which is focused on servicing an identified customer, for a consideration of USD8.4mn (including a contingent consideration of USD6.4mn).

Updates on AI/GenAI

1) New developments in AI, particularly in GenAI, are significantly reshaping the cost-benefit dynamics of modernizing legacy systems and reducing tech debt, as part of broader changes in IT operations. 2) Mphasis' AI accelerates enterprise AI adoption at scale, enabling secure model deployment from experimentation to production. This has resulted in up to 60% faster time-to-market, 90% accuracy, and up to 50% improvement in productivity. 3) Since the launch of Mphasis.ai, over 250 AI/ML models have been made available across AWS, Microsoft, and Google marketplaces. 4) The company has seen its AI pipeline grow 2.2x since the launch of the AI business unit about 2 years back, leading to the largest-ever TCV wins in the quarter, primarily driven by AI-led deals. Mphasis continues to invest in its proprietary next-gen platforms—NeoZeta and NeoCrux, to further strengthen its AI-led growth strategy.

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