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Good execution on deal wins and growth

But growth-led investments to bind margins; reiterate NEUTRAL

* Mphasis (MPHL)’s 4QFY25 gross revenue was 2.9% QoQ in Constant Currency (CC), in line with our estimate of 3.0% QoQ CC. Direct business grew 3.8%/6.8% QoQ/YoY in CC, aided by BFS and TMT. TCV was up 11% QoQ to USD390m. EBIT margin stood at 15.3%, in line with our estimate of 15.4%. PAT came in at INR4.5b (up 4.4%/13.6% QoQ/YoY), in line with our estimate of INR4.5b. For FY25, net revenue/EBIT/PAT grew 6.7%/8.0%/9.5% YoY in INR terms. We expect revenue/EBIT/PAT to grow 11.2%/10.9%/11.3% YoY in 1QFY26. MPHL targets a sustainable operating (EBIT) margin within the band of 14.75-15.75% (vs. 14.6-16% earlier). We reiterate our Neutral rating on the stock.

Our view: Solid FY25 exit sets the tone for a good start to FY26

* Momentum from Q4 carrying into the start of FY26: MPHL exited FY25 on a strong footing, with Q4 clocking the highest growth in 12 quarters at 2.9% QoQ in CC terms. This momentum is expected to sustain into 1QFY26, aided by ramp-ups in the BFS and TMT verticals. Management commentary was confident, underpinned by steady TCV conversion and a robust deal pipeline.

* Healthy TCV wins a key positive: The company reported TCV wins of USD390m in Q4, up 120% YoY, its best-ever quarter. Importantly, ~85% of wins were in NextGen services, with AI-led deals forming a major chunk (59%). This was the most encouraging takeaway. We will turn constructive on the stock with sustained revenue conversion and clarity on the logistics vertical.

* Logistics remains a watch area: The logistics and transportation segment continues to face a broad-based decline due to macro-related delays, particularly due to tariff uncertainty and trade flow disruptions. Logistics declined 6.4% QoQ in 4QFY25. While the pipeline remains intact, the deal ramp-up timelines are uneven. A large Q4 win is expected to partially ramp up in 1Q, but full stabilization may take more time.

* EBIT margins remain within the guided band: Margins for Q4FY25 stood at 15.3%, steady QoQ and within the revised sustainable band of 14.75- 15.75%. While there is no near-term focus on margin expansion, efficiency levers like offshoring, platform reuse, and AI productivity could help offset upfront investments in large deals and GenAI platforms.

Valuation and change in estimates

* We are positive on the BFSI exposure as it remains relatively resilient in the current uncertainty, and we will turn positive once clarity around logistics emerges. Our estimates are largely unchanged. Over FY25-27, we expect a USD revenue CAGR of ~9.7% and an INR PAT CAGR of ~10.2%. We value the stock at 25x FY27E EPS (earlier 23x) with a TP of INR2,700. We reiterate our Neutral rating on the stock.

In-line revenue and margins but logistics declines 6% QoQ; deal TCV wins healthy

* MPHL’s gross revenue of USD430m grew 2.9% QoQ CC, up 5.4% YoY CC, in line with our estimate of 3% QoQ CC growth. For FY25, revenue stood at USD1.6b, up 4.6% YoY CC.

* Direct revenue was up 3.8% QoQ CC and 6.8% YoY CC.

* BFS and TMT led the growth with 7.4/9.5% QoQ increases, followed by Insurance (up 2.0% QoQ), while logistics declined 6.4% QoQ.

* EBIT margin stood at 15.3% vs our estimate of 15.4% QoQ. For FY25, EBIT margin stood at 15.3%.

* PAT was INR4.5b (up 4.4% QoQ). For FY25, PAT stood at INR17b, up 9.5% YoY.

* TCV stood at USD390m (up 11% QoQ/120% YoY) vs. USD351m in 3QFY25. About 85% of the deal wins were in NextGen Services. For FY25, deal TCV stood at USD1.2b vs USD1.3b in FY24.

* Offshore utilization (excl. trainees) increased 300bp QoQ at 78%. Net headcount was flat at 31,442 in 4QFY25.

* The sustainable EBIT margin target range has been revised to 14.75-15.75% (vs 14.6-16% earlier).

Key highlights from the management commentary

* Certain industries, including logistics, energy, automotive, and supply chains, are directly impacted by tariff fluctuations. The volatility in tariffs has not changed their stance, as decision-making has been paused. While decisions are being delayed, no cancellations have been observed. BFSI is experiencing secondorder macroeconomic impacts, though these have not yet materially affected results.

* Clients are prioritizing the consolidation and modernization of their technology stacks. Converting pipeline opportunities into Total Contract Value (TCV) and converting TCV into revenue remain top strategic priorities.

* Management expects revenue to grow above the industry average in FY26, supported by recent deal wins.

* AI-led deals are becoming a key driver of pipeline growth, especially for large contracts, helping the company maintain its competitive edge.

* TCV-to-revenue conversion remains steady, with an accelerated pace of deal conversion.

* Management expects the current TCV run rate to be sustained in FY26, unless there is a significant macro deterioration.

* The company has revised its sustainable EBIT margin target range to 14.75- 15.75% (earlier 14.6-16%) to allow flexibility for ramping up mega or large deals, which often require upfront investments.

* The shift from service delivery to solution delivery has reduced concerns around margin dilution from onshoring; the company now views it as a ‘right-shoring’ strategy instead.

* Offshore headcount increased in Q4 due to large deal ramp-ups. The company does not plan on building a large bench and will continue to align its headcount with demand.

* Clients are increasingly focused on improving productivity using AI across business operations, IT, underwriting, and claims processing.

Valuation and view

* We are positive on the BFSI exposure as it remains relatively resilient in the current uncertainty, and we will turn positive once clarity around logistics emerges. Our estimates are largely unchanged. Over FY25-27, we expect a USD revenue CAGR of ~9.7% and an INR PAT CAGR of ~10.2%. We value the stock at 25x FY27E EPS (earlier 23x) with a TP of INR2,700. We reiterate our Neutral rating on the stock.

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