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Record deal TCV sets up a healthy FY26

Logistics revenue to grow too

* Mphasis (MPHL)’s 1QFY26 gross revenue inched up 1.0% QoQ in Constant Currency (CC), below our estimate of 1.5% QoQ CC. Direct business rose 1.6%/8.1% QoQ/YoY in CC, fueled by BFS and Insurance. TCV was up 95% QoQ to USD760m. EBIT margin stood at 15.3%, in line with our estimate of 15.3%. PAT came in at INR4.4b (down 1.1%/up 9.2% QoQ/YoY), in line with our estimate of INR4.5b.

* For 1QFY26, net revenue/EBIT/PAT grew 9.1%/11.2%/9.2% YoY in INR terms. We expect revenue/EBIT/PAT to grow 10.3%/10.7%/13.0% YoY in 2QFY26. MPHL targets a sustainable operating (EBIT) margin within the band of 14.75-15.75%. While deal wins have been consistent and execution is encouraging, the broader demand environment remains uneven, with an elongated decision cycle. We reiterate our Neutral rating on the stock.

Our view: Record TCV offsets mixed demand cues

* Strong start to FY26 with healthy execution and deal ramp-ups: MPHL posted 3.2% QoQ CC growth in Direct, driven by steady ramp-up of large deals in BFS and Insurance. This quarter benefited from momentum carried over from 4Q, with continued traction in BFSI/TMT and early signs of recovery in logistics. Excluding logistics, growth was healthy at 7.4% QoQ/ 16.4% YoY in USD terms. While management remains optimistic about sustaining momentum into upcoming quarters, we believe broader demand continues to be uneven, with client decision cycles elongated and pockets of hesitation still there in some segments.

* Logistics recovery underway but still remains a monitorable: While clientspecific issues in logistics have largely been resolved, revenue contribution from the segment remains volatile. MPHL indicated that recovery is anticipated in the coming quarters, with some large dealsin ramp-up mode. We believe a more sustained improvement over the next couple of quarters would add comfort on broader vertical health and help usturn more constructive on the name.

* Record TCV wins: TCV for the quarter came in at USD760m – the highestever for MPHL – with four large deal wins, including three USD100m+ deals. Steady TCV-to-revenue conversion will remain key to tracking execution from hereon.

* EBIT margin remains within the guided band: MPHL’s EBIT margin stood within the guided band (14.75-15.75%) as the company continues to balance growth investments with operational levers like utilization and delivery transformation. Management commentary indicates margins may hover near the midpoint of the range. With elevated utilization and a fixed-price mix rising, the margin trajectory should remain stable in the near term. We estimate a 15.2%/15.5% EBIT margin for FY26/FY27.

Valuation and changes to our estimates

* We remain positive on the BFSI exposure, as it remains relatively resilient amid the current uncertainty. That said, broader demand visibility is still evolving, and the pace and consistency of TCV-to-revenue conversion remain a key monitorable. We broadly retain our estimates. Over FY25-27, we expect a USD revenue CAGR of ~9.7% and an INR PAT CAGR of ~12.0%. We value the stock at 27x FY27E EPS with a TP of INR2,900. Reiterate Neutral.

Miss on revenue but in-line margins; big beat on deal TCV (up 95% QoQ)

* MPHL’s gross revenue of USD 437m grew 1.0% QoQ CC, up 6.5% YoY CC, below our estimate of 1.5% QoQ CC growth.

* Direct revenue was up 1.6% QoQ CC and 8.1% YoY CC.

* Insurance & BFS led the growth, with a 21.9%/7.6% QoQ increase, while logistics declined 46% QoQ in USD terms.

* EBIT margin stood at 15.3% vs. our estimate of 15.3% QoQ.

* PAT was at INR4.4b (down 1.1% QoQ) vs. our estimate of INR 4.5b.

* TCV stood at USD 769m (up 95% QoQ/138% YoY). About 82% of the deal wins were in NextGen Services.

* Offshore utilization (excl. trainees) increased 600 bps QoQ at 84%. Net headcount declined 1.2% QoQ in 1QFY26 to 31,063.

* A sustainable EBIT margin target range has been maintained at 14.75%-15.75%.

Key highlights from the management commentary

* Continued volatility and lack of tailwinds; decision cycles remain elongated due to persistent uncertainty.

* Geopolitics and cyber remain dominant themes in client conversations. Tech spending is being funded at the program level rather than top-down.

* AI investments are being carved out from existing budgets. GCC remains an evolving theme, with models ranging from carve-outs and build-outs to managed captives.

* Demand saw some resilience, but only in selected pockets.

* Growth momentum was sustained through deal wins and underlying business resilience. Growth was led by BFS, Insurance, and the ramp-up of recent large deals.

* Expecting to clock ~2x industry growth on the back of strong Q1 performance and steady TCV-to-revenue conversion.

* MPHL witnessed the largest-ever pipeline, led by Mphasis AI platforms. It also recorded the highest-ever TCV wins, driven by large deals.

* BFS pipeline was up 47% YoY; Non-BFS rose 108% YoY. Strong traction was seen in AI archetypes such as AI Ops, Data, and AI Modernization.

* TCV for the quarter stood at USD760m — the highest in company history. Secured four large deals: three worth USD100m+ and one worth USD50m+.

* TCV wins were primarily led by BFS, Insurance, and TMT. Spending themes focused on cost takeout, efficiency, and vendor consolidation.

* Targeting operating (EBIT) margin in the 14.75%–15.75% range. Expecting margins to hover around the midpoint of the guidance band.

* Headcount has stabilized; utilization improved in this quarter. Going forward, expect divergence between headcount growth and revenue growth.

Valuation and view

* We remain positive on the BFSI exposure, as it remains relatively resilient amid the current uncertainty. That said, broader demand visibility is still evolving, and the pace and consistency of TCV-to-revenue conversion remain a key monitorable. We broadly retain our estimates. Over FY25-27, we expect a USD revenue CAGR of ~9.7% and an INR PAT CAGR of ~12.0%. We value the stock at 27x FY27E EPS with a TP of INR2,900. Reiterate Neutral.

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