Mphasis Records Steady Performance; Robust Pipeline Fuels Confidence

Result Update

Information Technology   

April 25, 2025

ADD

CMP (Rs): 2,539 | TP (Rs): 2,800

Mphasis delivered a steady performance in Q4FY25. Revenue growth of 2.9% CC QoQ was the highest since the last 12 quarters, and in line with our estimate. Growth continues to be led by the BFS and TMT verticals, while challenges in Logistics persist. EBITM stood flat QoQ at 15.3%, a tad better than our estimate of 15.2%. The company won new deals with TCV of USD390mn in Q4; 85% of the deal wins were in new-gen services. Segments seeing the direct impact of tariffs have exercised caution and witnessed delays in decision-making. The management is focused on improving consistency in growth performance, and expects FY26 revenue growth to be above-industry on the back of strong deal wins, healthy pipeline, and steady TCV revenue conversion. It narrowed its EBITM guidance band to 14.75-15.75% (from 14.6-16% earlier), with the bottom-end leaving scope for increased investments, particularly in case of a mega deal. We trim FY26-27E EPS by ~2%, considering the Q4 performance and macro uncertainty. We retain ADD and TP of Rs2,800 at 25x Mar-27E EPS. 

Results Summary

Gross revenue grew 2.6% QoQ (2.9% CC) to USD430.4mn, in line with our estimate. Direct Revenue grew 5.4% QoQ in rupee terms (3.8% CC). EBITM was flat QoQ at 15.3%, coming in 10bps higher than our estimate. Among verticals, BFS, Insurance, and TMT grew 5.6%, 0.3%, and 8.2% CC QoQ, respectively, while Logistics & Transportation and Others declined 7.7% and 3.4%. Within geographies, Americas, EMEA, and RoW reported 5.2%, 2.3%, and 28.9% QoQ growth in rupee terms, respectively, while India declined 11.1% sequentially. Revenue from the top-10 and top 11-30 clients grew 5.8% and 5.7% QoQ, respectively. Total headcount was up by 248 QoQ to 31,442, after 4 consecutive quarters of a decline. What we liked: Momentum in BFS and TMT, strong deal intake and deal pipeline (up 26%/86% QoQ/YoY). What we did not like: Softness in Logistics & transportation (declined ~8%/16% QoQ/YoY).

Earnings Call KTAs

1) Macro headwinds have caused some delays in decision-making. Tech spending is likely to grow 2-3% in current environment. 2) BFSI and Healthcare are not impacted directly by tariffs, while Logistics, Supply chain, Manufacturing (particularly auto), Energy, and Railroads have been directly hit. 3) BFS growth is driven by wallet share gains, new logos, and large deals. Mortgage is stable. Insurance is poised for strong growth in FY26, backed by deal wins and pipeline. 4) Continued wins and conversion are driving revenue growth in TMT. 5) Logistics declined QoQ, impacted by macro volatility, but the pipeline remains healthy. 6) Client pyramid continues to improve, adding one client in the +USD75mn, one client in the +USD20mn, and three clients in the +USD5mn categories. 7) AI-led deals constitute 65% of the pipeline in Q4, up from 25% a year ago. 8) The company is focused on micro-level execution amid macro uncertainty, with a client-specific approach toward deal conversion and ramp-ups. 9) The management expects pace of revenue and deal conversion to continue, propelled by the savings-led transformation theme.