IGI Logo

Addressing measurable outcome gap

We attended Mphasis ’ (MPHL IN) Investor Day , wherein the company highlighted that: i) concerns over new players disrupting the traditional business model of IT Services seem unwarranted in the near -to-medium term (enterprises have technical debt) – USD 3tn of annual financial transactions globally still run on mainframes. ii) AI tools are becoming faster but enterprise adoption is lacking due to scale impact as well as lack of measurable outcomes. iii) Though fixed price model revenue mix is increasing, T&M model is not phasing out fully – Some revenue mix, even in the longer term, will re main T&M. iv) MPHL launched Mphasis TRIA, an enterprise agency platform, which enables enterprises to move beyond AI experimentation into coordinated decision making and measurable business outcomes. v) MPHL sees entry of OpenAI into services as a validation and relevance of services in the long term. We retain Buy with an unchanged TP of INR 2,845

Enterprise technical debt shielding traditional business for MPHL:

MPHL highlighted that concerns surround every narrative around IT Services, as:

i ) a new breed of competitors in the market – AI native startups, model companies – are venturing into services, compressing traditional business models.

ii) Clients expect more output with less spend, i.e., pricing power for IT Services is eroding , seem unwarranted . The management highlighted that USD 3tn of annual financial transactions globally still run on mainframe s. More than 220bn lines of code ( legacy code ) exist in the financial services space . Undocumented policy logic spanning thousands of client institutions as well as zero documentation across legacy payment workflows exists. A new breed of competition may not make any dent in this part of the business.

Enterprises yet to realise benefits of AI adoption:

The management highlighted that he new mandate for IT Services is to solve business problems with AI, and not just deploy AI tools. Clients need partners that can help them use AI to solve business problems and deliver measurable outcomes. Clients bought efforts and capacity in the older business models, while clients are looking to buy outcomes, governance and speed in the new model. Hence, a bigger shift is not cost reduction but the way outcomes are del ivered, and clients are even looking to pay premium for it. At the same time, the management highlighted that traditional Time & Material (T&M) is not phasing out fully as some clients still prefer this. It will likely evolve over time. Per MPHL, the entry of companies such as OpenAI into services validates the need and relevance of services in the ecosystem. As per management, product companies such as SAP, Oracle etc. have services arm, but cost -efficient delivery at large scale, remains a moat for IT ser vices.

Retain Buy with an unchanged TP of INR 2,845:

MPHL continues to maintain high single - digit to low double -digit revenue growth guidance in FY27. We maintain 11%/12% USD revenue growth estimates for FY27E/FY28E (at the higher end of the guidance) as well as 17.5% earnings CAGR in FY26 -28E. We maintain Buy with an unchanged TP of INR 2,845 , based on 21x (unchanged) FY28E P/E. Key risk is slower -than -expected growth

Please refer disclaimer at Report
SEBI Registration number is INH000000933