Accumulate Mphasis; target of Rs 2920: Prabhudas Lilladher

Prabhudas Lilladher's research report on Mphasis

The revenue growth performance (+1.0% QoQ CC) was tad below our estimates (+1.4% QoQ CC), attributed to L&T business (down 46% QoQ) due to client-specific investments, which largely got offset through continued momentum in other parts of the portfolio. More importantly, the Direct business stood on a strong footing, grew 1.6% QoQ CC, led by BFS (+8.1% QoQ) and Insurance (+21.0% QoQ). The record high deal TCV of USD760m (80%+ New Gen) aided by four large deal wins in Q1 of three 100m+ TCV and one 50m+ TCV. Despite having recorded notable large wins in Q1, the deal funnel still looks encouraging (84% YoY). BFS and non-BFS pipelines are up 47% YoY and 108% YoY, respectively. We believe the company’s strong participation in AI-led transformation (68% AI-led deal pipeline) and taking ownership of client budgets through inevitable AI investments, partly de-risk the discretionary churn. The consistent increase in large deal wins and steady conversion rate (TCV to Revenue), which is missing in many of its peers, gives us confidence to stay positive on Mphasis.

Outlook

We are baking revenue growth of 6.2%/8.0% YoY CC with EBIT margin of 15.5%/15.7% for FY26E/FY27E. We are assigning 26x to FY27 EPS, translating a TP of 2,920. Upgrade to ACCUMULATE (HOLD earlier).