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Mphasis, IT solutions provider specialize and helps clients deliver a portfolio of next-generation offerings and services that blend their deep domain expertise with cutting-edge technology. They have domain contextualized offerings, cross-functional teams, strong understanding of client business domain which helps in driving customer-centric transformation.

Growth expected from next generation techniques: Mphasis earns strong revenue from the American region (~81% in FY23), Banking vertical (~53% in FY23) and from its direct business (~95% in FY23). Currently, both American and Banking clients are facing headwinds and there is delay in the signing of deals. However, Mphasis aims to drive growth by introducing products which would help in transformation, gain more clients and fulfill their requirement as well as upskill employees and retain. So, their approach is to innovate products & solutions which would include newer technologies such as AI, ML, cyber security, etc. These technologies are high in demand thus the company has recently launched Mphasis.ai and partnered with Kore.ai & Databricks. Besides it has launched solutions such as Sparkle Innovation Ecosystem, the Hyperscalers network, Quantum Computing, DeepInsights™, InfraGenie™, PACE-ML, Xenon, Platform++, etc. to help clients transformative journey, improve productivity and drive efficiency.

Deal momentum to be strong: Over the last 5-6 years, Mphasis has been proactive focusing on winning more deals from existing as well as tying up with new clients for large deals. Currently its deal portfolio has seen a growth of 19% CAGR over FY18-FY23, and has won deals worth USD 1.31 bn and USD 0.71bn in FY23 and Q1FY24. Along with healthy demand for cloud and digitalization, the company has been continuously developing their offering for clients from cloud to Artificial Intelligence to machine learning and other technologies. Going ahead, their plan is to win large deals by focusing on strategic partnership, developing products using newer technologies and exploring opportunities in areas of growth such as hi-tech, insurance, healthcare, logistics, etc.

Management Guidance: Mphasis management is cautiously optimistic on the deal pipeline including cloud, AL and transformational deals. They saw a soft start in the Banking & Finance sector however pickup is likely ahead as well focus will be on gaining orders from other sectors. Also they expect EBIT margins to be retained in the range 15.25%-16.25% in every quarter of FY24.

Outlook & Valuation: Despite the macro challenges the IT sector is facing for the near term, we believe Mphasis strategy of investing in right growth areas such as new generation technology, partnering with companies for technology and adhering to customer centric approach will aid growth for the company. Also, management's optimistic view on margin range because of improving utilizations and gaining large deals would support growth. We have estimated its revenue/EBIT to grow at a 15% & 19% CAGR over FY23-25E and have initiated a Buy rating on the stock with a target price of Rs 2,960.

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SEBI Registration number is INZ000174330