Buy Mphasis Ltd For Target Rs. 2,980 By JM Financial Services
Building backlog
Mphasis’ (MPHL IN) 4Q revenues grew 2.9% cc QoQ. Growth was driven by TMT (+8% QoQ) and BFSI (+6%) as recent deals ramped. Fundamentally, it suggests leakages are stabilising, driving better TCV-revenue conversion. Management expects that to continue. Importantly, bookings have improved too. MPHL won USD 390mn net new TCV, second consecutive quarter of USD 350mn+ bookings. Despite healthy conversions, pipeline grew 26% QoQ. That is informing management’s view of bookings momentum to sustain into 1H as well. Unsurprisingly therefore, they believe FY26 growth could be better than FY25’s, the first company thus far to make such claim. This should ally concerns around potential loss of a large Logistics & Transportation’s account. MPHL’s lower exposure to sectors with first order impact of tariff positions it well to navigate the current environment, in our view. It’s newly formed strategic engagement team (for large deals), focus on savings led transformation (should resonate well in current macro) and steady win rates bode well for consistency in deal bookings, and hence growth. Still, given the environment, we have lowered FY26/27E cc growth to 7.2%/8.5% vs 9%/11% earlier. Steady margin assumptions drive 0-3% cut to FY26-27E EPS. We continue to value the stock at 25x (c.30% discount to our target multiple for Coforge). Retain BUY with a revised TP of INR 2,980 (from INR 3,050)
* 4QFY25 - decent quarter: MPHL grew 2.9% cc QoQ. Albeit in-line, this was their best sequential growth in the past three years, as guided in 3Q. Direct revenues grew 3.8% QoQ, implying 5% decline in DXC channel growth. Growth was led by TMT (+8.2% cc QoQ) and BFSI (5.6%). Deal ramps (i.e of USD 100mn BFS deal won in Jan) and wallet share gains helped. Logistics & Transportation (L&T) however declined 7.7%, as tariff related uncertainty accentuated client specific challenges, in our view. Mortgage business was stable. EBIT margin was stable at 15.3% (JMFe: 15.2%). PAT grew 4.4% QoQ to INR 4,465mn, 4% ahead of JMFe: INR 4,309mn. MPHL announced INR 57 DPS.
* Outlook - backed by backlog: MPHL won USD 390mn TCV, up 120% YoY, inlcuding two large deals. MPHL won deal in BFS, Logistics and Healthcare. Pipeline growth was equally strong (+86% YoY), led by non-BFS (+99% YoY). Management believes deal momentum could sustain into H1FY26, despite macro uncertainty. Management therefore feels FY26 growth could be better than FY25’s. They also expect sequential growth to be more consistent, implying good Q1. Besides, full quarter impact of USD 100mn deal ramp (won in Jan-25), should aid Q1, in our view, balanced however by sustained weakness in L&T. A large deal won in Q4 in this segment and healthy pipeline should however help arrest the decline, per the management, potentially as soon as Q1. Management narrowed its EBIT margin guidance to 14.75-15.75% from 14.6-16% earlier. This was to keep some flex for potential upfront investments, as the company increases its focus on large deal pursuits.
* EPS cut by 0-3%; Maintain BUY: MPHL growth commentary was assuring. However, we still trim our FY26/27 cc growth assumption by c.2ppt, to factor current uncertainty. Margin assumptions are broadly unchanged, leading to 0-3% cut to our FY26-27E EPS. MPHL’s portfolio mix insulates it relative to peers. Valuation (22x) is reasonable. BUY.
Key Highlights from the call
* Demand: Mphasis witnessed 2.9% cc sequential growth in Q4, led by continued momentum in BFS and TMT verticals. The company reported a surge in large deal activity, with AI-led transformation deals accounting for the majority of TCV wins. Notably, the firm highlighted a material ramp-up in demand for offerings across core modernization, AI Ops, and SDLC transformation, underpinned by expanding client focus on tech stack simplification and AI integration. Management mentioned that the pipeline witnessed significant acceleration—up 86% YoY and 26% QoQ—driven by proactive deal origination efforts and increasing traction in both BFS and non-BFS sectors.
* Outlook: Management remains confident of sustaining growth momentum into FY26, supported by a robust pipeline and strong conversion trends. The company emphasized continued investments in AI platforms and strategic capabilities to drive differentiation. Despite macro uncertainties, Mphasis expects to outperform industry growth rates in FY26, aided by rising large deal wins and consistent deal-to-revenue conversion. The leadership highlighted that with ~60% of revenues coming from BFSI, the company has relatively low exposure to first order impact of tariffs.
* Margin: Mphasis delivered an EBIT margin of 15.3% in Q4, maintaining stability amid a volatile environment Margins are guided to remain within the 14.75%–15.75% band, with flexibility maintained to support upfront investments tied to new deal ramp-ups or AI-led initiatives. Leadership emphasized that while margin expansion remains structurally feasible, the current priority is to accelerate growth. They noted that the ability to improve margins exists should the firm choose to curtail investments; however, the focus remains firmly on scaling revenue through deal conversions and AI-led differentiation.
* Segments: BFS – Growth was led by continued wallet share gains and successful execution across both new and existing accounts. The segment benefitted from strong client mining and a robust pipeline of large deals. TMT – Revenue momentum continued with ramp-up of large deals signed in prior quarters. The segment also saw strong traction from new account additions. Logistics and Transportation – While macro challenges persisted, deal activity remained healthy with visible pipeline strength. Management remains focused on reviving growth in this segment. Insurance – The vertical showed steady sequential progress, with recent deal wins and pipeline strength expected to drive further growth in the coming quarters.
* Bookings: The Company closed Q4 with its highest TCV in seven quarters, securing USD 390mn in wins, of which 59% were AI-led. This included two large deal wins, bringing the FY25 large deal count to 13. The pipeline witnessed significant sequential and annual growth, with a 26% QoQ and 86% YoY rise. Large deal pipeline alone grew 154% YoY. Management emphasized that the wins were spread across verticals and client archetypes.
* AI Strategy: AI continues to emerge as a core pillar of Mphasis’ strategy, with management highlighting a sharp rise in AI-led deals—up from 25% in Q4 FY24 to 65% in Q4 FY25. The company is executing a structured four-phase AI roadmap encompassing data foundation, secure orchestration, enterprise-grade identity, and LLM-agnostic architecture. Leadership highlighted that 59% of their TCV was AI-led in Q4.
* Supply: Mphasis continued to follow a dynamic and demand-aligned approach to talent management in Q4, guided by a rolling 90-day forecasting model across geographies and skill sets. The company does not target a fixed utilization or hiring level; instead, staffing decisions are tightly linked to the active deal pipeline and project-specific needs.
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SEBI Registration Number is INM000010361
