Prabhudas Lilladher's research report on Mphasis
The quarterly performance was broadly in line with our estimates. Despite the quarterly seasonality ~80% of its portfolio mix maintained a steady state, while the rest of its business mix (L&T and Others) reported a decline of ~7% QoQ each. The continued improvement in large deal wins (YTD 11 large deals) and meaningful conversion of those deals are supporting the growth within BFSI space. More importantly, the company recently made a closure to a large deal ($100m) within BFSI, which should again support the growth in Q4. We believe the acceleration of large deals is aided by recently hired senior leader to chase large deals across BUs along with improving client sentiment in the core geographies. Despite having reported a strong deal TCV in Q3, the pipeline looks attractive (+50% YoY), which gives us confidence for maintaining steady topline growth in FY26/FY27. The nature of the current deals hasn’t witnessed meaningful change, which are still cost focused and vendor-consolidation side, while infusing AI into large transformation deals. The execution on margins was remarkable, it expects the linearity between revenue growth and resource hiring should fade as it integrates more AI with human capability in the coming projects. However, the ramp up of large deals can come up with a meaningful rebadging component, which might lead to increase in onshore hiring and cost elements. Hence, we are not passing on margin benefits despite the Q3 margin beat. We are largely keeping our revenue and margin estimates unchanged for FY26E/FY27E, we are baking in revenue growth of 11.6%/14.1% YoY CC with EBIT margin of 16%/16.4% for FY26E/FY27E.
Outlook
Given the improving revenue visibility and its ability to sustain margins, we are upgrading to “ACCUMUALTE” (HOLD earlier) on MPHL assigning PE of 26x (vs 25x earlier) to FY27E with a target price of Rs 3,200.
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