Buy Mphasis Ltd For Target Rs.3,000 by Motilal Oswal Financial Services Ltd
Upward revision to the FY27 guidance
* Mphasis (MPHL)’s 2QFY27 revenue grew 3.3% QoQ in constant currency (CC), broadly in line with our estimate of 3.1% QoQ CC. Direct revenue rose 3.5% QoQ CC and 11.3% YoY CC. TCV was down 11.7% YoY to USD466m. EBIT margin stood at 14.8%, below our estimate of 15.1%. Adj. PAT came in at INR5.6b (up 14.6% QoQ), in line with our estimate of INR5.5b.
* For 1HFY27, revenue/EBIT/adj. PAT grew 18.9%/13.6%/15.4% YoY in INR terms. We expect revenue/EBIT/adj. PAT to grow 16.1%/15.6%/20.8% YoY in 2HFY27. The company has raised its earlier guidance of high singledigit to low double-digit revenue growth to the low-double-digit range, along with a sustainable EBIT margin range of 14.75%–15.75% backed by disciplined execution and 80% conversion of net income to operating cash flow. We value the stock at 22x FY28E EPS, arriving at a TP of INR3,000. We reiterate our BUY rating on the stock.
Our view: Margin trajectory remains measured
* Revenue growth outlook improves; FY27 guidance raised: MPHL delivered its strongest QoQ CC revenue growth in three years. The improved growth momentum reflects ramp-ups in large deal wins, contributions from new logos and faster conversion of short-cycle engagements. With a record pipeline (TTM ~USD1.8b), six consecutive quarters of net new TCV above USD400m, and a healthy backlog supporting near-term revenue, the company raised its FY27 revenue growth guidance to the low-double-digit range from the earlier highsingle-digit to low-double-digit range. We build in 10.1% YoY CC revenue growth for FY27E.
* Short-cycle deals support near-term conversion: While 2Q net new TCV was broadly flat QoQ at USD466m (vs. USD461m in Q1), the composition of deal wins is increasingly supportive of near-term revenue growth. TCV for short-cycle deals of less than USD20m increased 26% YoY on a TTM basis, while the corresponding pipeline grew 35% YoY and 9% QoQ, outpacing overall pipeline growth of 23% YoY. Shorter-cycle AI engineering, cybersecurity, and modernization engagements are contributing to this momentum.
* Margins likely to remain near the lower end of the guidance range in FY27: EBIT margin was flat QoQ, with investments in delivery capabilities, onsite resources, and platform development offsetting operating leverage. The higher onsite mix in AI-led engagements and amortization of acquisition-related intangibles are also weighing on margins. Continued investments in new capabilities and deal ramp-ups are likely to limit near-term margin expansion. We expect margins to remain at the lower end of the guided range of 14.75–15.75% and build in a 15% EBIT margin for FY27E.
* Cash conversion remains volatile: OCF was USD34m in 2Q after normalizing for USD39.5m of client remittances initiated on 30th Sep’26 but received in October. DSO stood at 105 days, with underlying collections also affected by an increase of around 10 days sequentially. The company continues to target FY27 OCF conversion of 80% of net income, which implies a meaningful improvement in 2H and a conversion rate above 100% for the remainder of the year.
Valuation and view
* We remain positive on MPHL, supported by healthy deal momentum and improving growth visibility. AI-led opportunities now account for ~71% of the total pipeline, while ramp-ups of large deals and a higher share of short-cycle engagements should support revenue conversion over the coming quarters.
* Following the improvement in growth visibility and the upward revision to FY27 guidance, we raise our USD revenue/EPS estimates by 0.7%/1.2% and 2.3%/3.0% for FY27E/FY28E, respectively. However, as the company continues to prioritize growth and invest in platforms, tools, and delivery capabilities, we build in EBIT margins of 15.0%/15.3% for FY27E/FY28E. We forecast a USD revenue CAGR of ~10.5% and an INR PAT CAGR of ~16% over FY26–28E. We value MPHL at 22x (earlier 21x) FY28E EPS, arriving at a TP of INR3,000, and reiterate our BUY rating.
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