MphasiS Limited

Computers - Software & Consulting

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AI Summary

asof: 2025-12-03

Mphasis Limited (MPHASIS) Analysis: Headwinds, Tailwinds, Growth Prospects, and Key Risks

Overview: Mphasis (BSE: 526299; NSE: MPHASIS), a mid-cap IT services firm focused on BFSI, cloud, AI, and cognitive services, reported strong Q2 FY26 results (quarter ended Sep 2025). Revenue hit a record $445Mn (+2% QoQ / +6% YoY CC), driven by AI-led deals and direct business (97.5% of revenue). TCV wins remained robust at $528Mn (42% AI-led), with H1 FY26 TCV at $1.3Bn exceeding FY25 full-year. Margins held steady at 15.3%, EPS at ₹24.7 (+10% YoY). The company emphasized AI platforms (e.g., NeoIP™ launch) and quantum tech (qCryptsec™, QOptiDecision™), positioning for transformation deals. Guidance: >2x industry growth, margins 14.75-15.75%.

Tailwinds (Positive Catalysts)
  • AI-Led Momentum: 69% of record pipeline ($ high, +97% YoY / +9% QoQ) is AI-led; 42% TCV AI-led. Proprietary platforms (NeoIP™, NeoCrux™, NeoZeta™) embedded in deals, boosting productivity (e.g., 20-30% SDLC uplift). Early AI bets (since 2014) yielding 2.4x pipeline growth post-Mphasis.ai launch.
  • Deal Pipeline & Wins: Broad-based pipeline (+45% BFS YoY, +139% non-BFS; large deals +180%). H1 TCV $1.3Bn > FY25 full-year; LTM $2Bn+. 10 large deals in H1 (incl. $100Mn+ BFS, two $50Mn+). Multi-tower, Savings-Led Transformation™ deals.
  • Vertical Strength: Direct BFSI CQGR 4.7% (market-leading); Insurance +32% YoY, TMT +27% YoY. US +10% YoY, EMEA +7.5% QoQ. Client pyramid expanding ($10-100Mn+ bands).
  • Strategic Investments: Large Deals team, GTM ramp-up, Healthcare leader hire (leveraging Javelina®). Analyst accolades (Everest PEAK Matrix Major Contender/Star Performer in AI, Insurance BPS, etc.). ESG score 73/100.
  • Platform Shift: Software+services reducing headcount-revenue linkage; offshore utilization at 5-yr high.
Headwinds (Challenges)
  • Vertical Weakness: Logistics/Transportation -65% YoY revenue, negative margins (one-time client investment; expected Q3 recovery).
  • DSO Pressure: 89 days (+5 QoQ) from milestone/fixed-price contracts (mix +50% YoY); normalization expected in 3-4Q.
  • Sequential Softness: Overall revenue +2% QoQ CC (BFS -0.7% QoQ); furlough/seasonality risks in H2 (mitigated by fixed-price mix).
  • Client Concentration: Top client weakness washed out sequentially but lingers in LTM; top-10/11-30 grew 10-11% LTM.
  • Macro Noise: US regional banks, H1B visa uncertainty (low direct impact, but sentiment); mortgage refinance delayed (Fed cuts uncertain).
Growth Prospects
  • High Confidence Outlook: >2x industry growth via pipeline/TCV conversion (steady ramp-ups from Q1/Q2 large deals). H2 acceleration from deal ramps, AI archetypes (Ops, Modernization, Data).
  • AI/Tech Leverage: NeoIP™ (agents for modernization, app dev, IT/Business Ops) + quantum solutions position for “continuous transformation.” AI-led TCV run-rate elevated ($300-500Mn/quarter sustainable? Lumpy but trending up).
  • Geographic/Vertical Expansion: Non-US (EMEA +15% YoY Direct, RoW +16%); Logistics Q3 growth; Healthcare ramp-up.
  • Margin Resilience: Stable 15.3% despite investments; currency tailwind from INR depreciation (hedged 80%, losses to normalize).
  • LTM Metrics: TCV $2Bn+, pipeline 2x+ YoY; potential FY26 revenue CQGR acceleration if H2 > H1.
Metric Q2 FY26 YoY CC H1 FY26 FY25 Full
Revenue (\(Mn) | 445 | +6% | Strong | Record high | | TCV (\)Mn) 528 Robust 1.3Bn <1.3Bn
Pipeline Growth +97% AI 69% Record -
Key Risks
Risk Category Description Mitigation
Execution TCV-to-revenue lag (3-6 months for transformation deals); furlough/H2 seasonality. Steady ramps, fixed-price mix optimizes furloughs.
Macro/Geopolitical US slowdown (e.g., refinance, regional banks), H1B/H1 volatility, elections/shutdowns. Low H1B dependency; US 70% revenue but diversified verticals.
Currency/Financial INR depreciation → hedge losses (OCI impact); DSO stretch. Conservative 80% hedge; normalization expected.
Competition/Market AI hype → pricing pressure; commoditization if platforms undifferentiated. Proprietary IP (NeoIP™), MVPs/hackathons in RFPs; “human-in-loop.”
Operational Utilization volatility with software shift; talent/supply chain (quantum/AI skills). Dynamic 90-day forecasting; rolling supply chain.
Regulatory Quantum/crypto compliance (e.g., PQC standards); data privacy in AI. CBOM scanning, ISO certifications.

Overall Summary & Outlook: Bullish with Resilient Execution. Tailwinds from AI platforms and deal momentum outweigh headwinds (vertical-specific, DSO). Growth prospects strong (>2x industry, AI-driven), supported by record pipeline/TCV and stable margins. Risks are manageable (macro noise, execution lags) given direct model (97.5%), IP differentiation, and broad-based wins. FY26 could see 8-12% CC revenue growth if H2 ramps deliver; monitor Logistics recovery and DSO. Trading at ~20x FY26 EPS (est.); attractive for AI/IT growth play. Positive analyst positioning reinforces momentum.

   

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