Neutral Mphasis Ltd for the Target Rs. 2,900 by Motilal Oswal Financial Services Ltd
A mixed quarter
Deal wins healthy; margins to remain within the guided range
* Mphasis’s (MPHL) 2QFY26 net revenue rose 1.2% QoQ in Constant Currency (CC), largely in line with our estimate of 1.5% QoQ CC. Direct revenue rose 2.2% QoQ CC and 7.9% YoY CC. TCV rose 155% YoY to USD528m. EBIT margin stood at 15.3%, in line with our estimate of 15.3%. PAT came in at INR4.7b (up 6.2%/10.8% QoQ/YoY), in line with our estimate of INR4.7b.
* For 1HFY26, net revenue/EBIT/PAT grew 9.7%/10.3%/10.0% YoY in INR terms. We expect revenue/EBIT/PAT to grow 11.2%/12.3%/14.9% YoY in 2HFY26. MPHL targets a sustainable operating (EBIT) margin within the band of 14.75-15.75%. While deal wins has been consistent and execution is encouraging, the pace and consistency of conversion remain the key monitorables. We reiterate our Neutral rating on the stock.
Our view: Revenue conversion yet to accelerate
* Seasonal furloughs to weigh on 3Q: MPHL posted a modest 1.2% QoQ CC growth in 2Q, driven by a steady ramp-up of deals. TMT and Insurance led growth during the quarter, with consistent ramp-ups and conversions. Although logistics experienced another decline, management expects sequential growth in the upcoming quarter. We expect furloughs to weigh on 3QE growth (1.8% QoQ CC), with a recovery in 4QE (2.8%) as ramp-ups from large deals offset near-term softness, supporting a stronger FY26 exit.
* Revenue conversion remains a key monitorable: TCV for MPHL stood at USD528m (up 155% YoY), with six large deal wins during the quarter. As a result, TCV won in 1HFY26 now exceeds the full-year TCV for FY25. That said, while TCV growth has consistently remained above 100% YoY over the past few quarters, meaningful revenue conversion has yet to follow. Unlike other mid-cap peers, revenue growth and deal conversion have not been at par. We would turn constructive on the stock once we observe sustained revenue conversion.
* EBIT margins remain within the guided band, GTM investments continue: MPHL has continued to deliver margins around the midpoint of its guided range (14.75-15.75%) over the past few quarters, now. The logistics vertical margin was impacted by a one-time client-specific investment. This is expected to normalize in 3Q. Further, utilization reached 87% (vs 76% YoY), and fixed price contracts increased 50% YoY. With elevated utilization and a rising fixed-price mix, the margin trajectory should remain stable in the near term. We estimate 15.4%/15.5% EBIT margin for FY26/FY27.
Valuation and change in estimates
We are positive on the BFSI exposure as it remains relatively resilient amid current uncertainties. That said, broader demand visibility is still evolving, and the pace and consistency of TCV-to-revenue conversion remain key monitorables. Our estimates are largely unchanged. Over FY25-27, we expect a USD revenue CAGR of ~8.1% and an INR PAT CAGR of ~12%. We value the stock at 26x Jun’27E EPS with a TP of INR2,900. We reiterate our Neutral rating on the stock.
Revenue and margins in-line with our estimates; deal TCV up 155% YoY, wins six large deals in 2Q
* MPHL’s net revenue grew 1.2% QoQ CC, largely in line with our estimate of 1.5% QoQ CC growth.
* Direct revenue rose 2.2% QoQ CC and 7.9% YoY CC. ? TMT and Insurance led growth with a 9.1%/4.3% QoQ increase, while logistics declined 2.7% QoQ.
* EBIT margin stood at 15.3% vs our estimate of 15.3%.
* PAT was at INR4.7b (up 6.2% QoQ), in line with our estimates of INR4.7b.
* TCV stood at USD528m (up 155% YoY). About 87% of the deal wins were in NextGen Services. The company won six large deals in 2QFY26.
* Offshore utilization (excl. trainees) increased 300bp QoQ to 87%. Net headcount declined 0.8% in 2QFY26 to 30,809.
* The company maintained its sustainable EBIT margin within the target range of 14.75-15.75%.
Key highlights from the management commentary
* Efficiency and savings continue to dominate client discussions, though bundled with transformation and modernization programs.
* The company expects to grow at >2x industry rate in FY26, backed by strong 1H performance and TCV conversion. Sequential growth is expected to continue through 2H, led by a steady ramp-up of large deals won in prior quarters.
* It is too early to assess the impact of furloughs, but the higher share of fixed contracts provides flexibility.
* The FY26 exit run rate is expected to improve meaningfully, with direct business being the primary growth driver.
* 1HFY26 TCV of USD1.3b already exceeds FY25 full-year TCV.
* The company has maintained margin stability despite continued investments in GTM and AI platforms.
* Conversion from TCV to revenue remains steady; ramp-ups are expected to strengthen over 3Q and 4Q.
* The 2Q margin impact in the logistics vertical was a one-off, tied to a clientspecific investment, with normalization expected in 3Q.
* H1B reforms have limited direct impact but may drive work globalization and faster adoption of automation.
* The company has launched the NeoIP™ Agentic Platform, integrating multiple AI agents for transformation.
Valuation and view
* We are positive on the BFSI exposure as it remains relatively resilient amid current uncertainties. That said, broader demand visibility is still evolving, and the pace and consistency of TCV-to-revenue conversion remain key monitorables. Our estimates are largely unchanged. Over FY25-27, we expect a USD revenue CAGR of ~8.1% and an INR PAT CAGR of ~12%. We value the stock at 26x Jun’27E EPS with a TP of INR2,900. We reiterate our Neutral rating on the stock.
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