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Strong deal wins

Mphasis’ (MPHL IN) Q3 performance was largely in line with our estimates. The company is likely to benefit from continued strong earnings environment at US and European banks given their healthy spreads. Also, on account of strong deal making activities in the US markets – M&As and IPO – earnings are likely to remain strong in the medium term. Considering MPHL’s >60% exposure to BFSI, it is likely to see an amplified uplift compared with peers. The company’s pipeline grew 2.5x since Q2FY24, while order book continues to be healthy (>USD 300mn in past five consecutive quarters, LTM TCV at USD 2.1bn). Healthy growth in pipeline along with strong order book is likely to enable robust revenue visibility. MPHL reiterated its aspiration to grow 2x the market growth. We maintain BUY with a higher TP of INR 3,440.

Growth led by Insurance, BFS and Americas: Revenue grew a strong 7.7% YoY in USD terms, in Q3FY26. In INR terms, gross revenue grew 12.4% YoY. Direct revenue grew 9.8% YoY, while DXC revenue continued to decline by 20.3% YoY in Q3 in USD terms. Q3 growth continued to be led by Americas, up 10% YoY, followed by RoW, up 7.7% YoY. The EMEA and India markets were weak, declining 0.9% YoY and 10.3% YoY, respectively, in USD terms. Vertical-wise, growth was led by Insurance, growing 37.9% YoY, followed by Tech, Telecom and Media (TMT), up 16.7% YoY. BFS (~52% of the mix) grew a strong 14.6% YoY, while Logistics continued to be weak, declining 52.3% YoY in USD terms. TCV was healthy at USD 428mn, up 21.9% YoY, driven by four large deal wins, including two +USD 50mn deals. LTM TCV was USD 2.1bn, doubled from last year, supported by a 4x growth in the modernization pipeline and 2x growth in large deals.

Margins down 10bps, led by contracting utilization: Q3 EBIT margin was down 10bps sequentially at 15.2%. While logistics returned to positive margins in Q3FY26. This was offset by uptick in selling expenses while utilization was lower in Q3. MPHL’s offshore billable headcount increased by 498 in Q3 (Majority of this was for offshore BPO services while services headcount addition wasn’t significant) which is attributed to an increase in large deal ramp-ups in the quarter. FY26 guidance for EBIT margin was maintained within a band of 14.75-15.75%.

Maintain BUY with a higher TP of INR 3,440: BFS revenue mix for MPHL rose on account of strong growth in this vertical, up 2.7% CQGR in past 7-8 quarters. BFS pipeline is up 98% YoY from 58% YoY growth in the same quarter last year. MPHL is gaining wallet share gains and growth in new accounts has been strong. Growth in Insurance has been aided by continued ramp up in recent large deal wins. Tech Media was weak this quarter but growth momentum may continue. For Logistics, we do not expect immediate recovery. MPHL also sees strong appetite for its application service line (75% mix; growth strong).

We tweak our estimates on strong 9MFY26 as well as continued robust order book. We build in 2-3% higher earnings in FY27E/28E. We increase our TP to INR 3,440 from INR 3,340 with an unchanged multiple of 28x. We maintain BUY.

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