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Revenue a miss: Mphasis revenue for Q2FY24 came in below our estimates wherein rupee revenue was down by 6.9% YoY but grew by 0.8% QoQ to Rs 3,276cr while revenue in dollar de-grew by 9.6% YoY to USD 398mn but was flat sequentially. The growth was largely impacted by the ongoing macro-economic environment which is impacting clients spending. Mixed performance was witnessed amongst geographies as well as segments wherein America and banking & finance remains impacted while EMEA (Europe, Middle East & Africa) & India as well as Insurance and media & technology witnessed healthy growth.

Highest contributing geographies & segments remains impacted: Amongst geographies, EMEA and India performance was healthy as (together it contributes 18% of revenue) EMEA grew by 13.6%/15.9% YoY/QoQ to Rs 394.4cr while India grew by 13.9%/6% YoY/QoQ to Rs 196.9cr. However its America region (contributing highest of ~79-80% revenue) witnessed de-growth of 9.9%/1.6% YoY/QoQ to Rs 2,610.9cr due to delaying in client spending as well as muted performance from banking sector. Amongst segments as well, its highest contributing segments i.e. banking & logistic and transportation (~60% of revenue) growth was muted wherein banking de-grew by 18.8%/3.6% YoY/QoQ to Rs 1,554.2cr and logistic growth declined by 1.6%/4.8% YoY/ QoQ to Rs 440.7cr. But strong growth and traction was seen in Insurance and media & technology sector (~28 of revenue) as insurance segment grew strong by 20.7%/2.9% YoY/QoQ to Rs 354.4cr while Media & Technology grew by 25%/15.7% YoY/ QoQ to Rs 570.3cr

Moderate margin improvement: Mphasis Q2FY24 EBIT de-grew by 5.8% YoY but grew by 1.4% QoQ to Rs 506.7cr while its EBIT margin came at 15.5%, improved by 19bps/10bps YoY/QoQ. This was in-line with management estimates and going ahead as well they have retained margin guidance.

Deal wins robust for H1FY24: Amongst the total deals, 3 are the large deals won in this quarter. Its order book for H1FY24 stands at USD 961mn, up by 59% i.e. USD 604mn in H1FY23, orders are broad based across verticals and clients. Further, due to macro challenges there is slow conversion of deals to revenue however that is expected to stabilize going ahead as management is seeing signs of bottoming out.

Cautiously optimistic management guidance: Management remains cautiously optimistic ahead as on one side, macro challenges are delaying clients spends however they are seeing signs of bottoming out and non-BFS (banking & finance) is gaining traction. Also, strong order pipeline and demand for AI, cloud and transformation deals is playing well for the company. Besides, they have maintained their EBIT margin guidance band of 15.25-16.25%.

Outlook & Valuation: IT sector is facing challenges and near term may remain impacted however companies like Mphasis have strong order pipeline and are continuously focused on investing behind newer technology. Additionally, healthy demand for AI & cloud will continue to drive order flow as well as management optimistic approach towards maintaining margins will aid overall growth. We have estimated its revenue/EBIT to grow at 15%/19% CAGR over FY23-25E and maintain our Buy rating with a target price of Rs 2,960

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