IGI Logo

Mphasis reported a slightly better-than-expected operating performance in Q2. Gross revenue grew 1.8% QoQ to USD445mn (2.0% CC), ahead of our estimate, led by the momentum in TMT and Insurance. The EBITM stood flat QoQ at 15.3%, a tad above our estimate. The company won deals with TCV of USD528mn in Q2 (H1FY26 TCV exceeded FY25 TCV); 87% of the deal wins were in new-gen services and 42% were AI-led. On TTM basis, TCV grew 115% YoY to ~USD2bn, with AI-led TCV being USD1.2bn. Mphasis won six large deals in Q2 (including a USD100mn+ deal from a new BFS client and two USD50mn+ deals). The management expects continued growth momentum in H2, with more growth likely to be skewed toward Q4 vs Q3 due to seasonality. Overall, it expects to grow at >2x the industry’s growth rate in FY26, on the back of its H1 performance, robust deal intake and pipeline (up 9%/97% QoQ/YoY), and steady conversion of TCV wins to revenue. The company continues to target EBITM at 14.75-15.75%. We tweak our EPS estimates by ~1% over FY26-28, considering the Q2 performance. We retain ADD on the stock, while raising our TP by ~9% to Rs3,050 (from Rs2,800), at 26x Sep-27E EPS.

Results Summary

Gross revenue grew 1.8% QoQ (2% QoQ in CC) to USD445mn, slightly ahead of our estimate. Direct revenue grew 5.5% QoQ in rupee terms (2.2% in CC). EBITM was flat QoQ at 15.3%, coming in 20bps higher than our estimate. The sequential revenue growth was led by Insurance (4.4%), though BFS (-0.7%) and Logistics and Transportation (- 2.7%) remained soft. Within geographies, Americas and EMEA reported 5.5% and 10.7% QoQ growth in rupee terms, respectively, while India and the RoW declined 4.1% and 0.6%, respectively. The BFS deal pipeline is up 45% YoY and non-BFS is up 139% YoY. Total headcount declined by 254 (down 0.6% QoQ) to 30,809. What we liked: Strong momentum in Insurance and TMT; robust deal intake and pipeline. What we did not like: Weak cash conversion (66% OCF/EBITDA).

Earnings Call KTAs

1) The management noted continued macro volatility, although emphasized that client decisions are increasingly driven by transformation and efficiency goals rather than macro factors. 2) Clients are reallocating budgets toward AI and digital transformation, seeking cost optimization and a faster time-to-market. 3) Growth in BFS was driven by wallet-share gains and strong execution in new accounts, although partially impacted by the ramp-down of the ATM business (on YoY basis, although not much sequentially). BFS delivered a CQGR of ~4% over the last four quarters. 4) Growth in Insurance was driven by the ramp-up in large deal wins. 5) The TMT segment continued to see strong revenue growth, supported by the ongoing deal momentum and conversions. 6) The management expects the Logistics and Transportation vertical to start delivering sequential growth from Q3…(contd)……(contd)…7) The company appointed a new leader for the Healthcare business, to oversee its GTM, pipeline development, deal closures, and the expansion of the Javelina platform across upstream payers (including national players), where it has recently achieved notable share gains. 8) H1FY26 TCV wins have been broad based across major verticals. Mphasis expects the pace of revenue and deal conversion to remain strong, propelled by the Savings and Transformation team. 9) Fixed price revenue contribution increased by over 50% YoY, reflecting a shift in the business model which improves margin visibility and operational leverage. While this enhances the scope for seasonal optimization, milestone-based billing and contract asset movements have led to higher DSOs (89 days in Q2; up 5 days QoQ); the management expects DSO to normalize over 3-4 quarters as collections align with the new revenue mix. 10) The management is seeing some decoupling of headcount from revenue through software-driven delivery and a 90-day rolling supply model, treating utilization as an outcome and leveraging AI platforms to boost throughput without relying on a large bench. 11) The company expects limited operational impact from the recent H1-B related announcements and anticipates that these would drive greater globalization of work and a faster adoption of automation. 12) On 1-Sep-25, the company, through its wholly owned subsidiary Mphasis Corporation, obtained control over the digital transformation management business of Locate Software Inc, which was focused on servicing a strategic customer, for cash consideration of USD8.5mn (including contingent consideration of USD6.3mn) payable over 15 months. As part of this transaction, certain identified employees/subcontractors of Locate were taken over and a revenue contract with an identified customer was novated to Mphasis.

Update on AI/Gen AI

1) Mphasis launched NeoIP, a unified AI platform that rewires enterprise systems and data for intelligent engineering and business transformation. Early client deployments of the platform are demonstrating up to 60% efficiency gains, 50% reduction in incident resolution time, and measurable margin improvements. 2) Proprietary tools such as NeoCrux are embedded into developer environments, enabling the use of AI-powered coding assistants to deliver faster, higher-quality software with reduced technical debt. 3) The company is investing in large-deal and solution teams to institutionalize AI-led transformations, which help both BFS and non-BFS sectors realize efficiency and innovation. 4) The management emphasized that AI is not only enhancing delivery speed and quality but also reshaping client engagement models and enabling outcome-based transformations at scale. 5) An AI-first strategy enables continuous transformation across verticals, creating repeatable, scalable outcomes and driving strong growth through embedded intelligence.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354