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    MphasiS Limited

    MPHASIS
    Information Technology·29 Jul 2025
    Management Summary

    Mphasis reported a strong Q1 FY26 with its highest-ever TCV wins of $760 million, largely driven by AI-led deals and robust growth in key verticals like BFS, Insurance, and TMT. Despite some regional and vertical specific headwinds, the company maintained stable EBIT margins and saw significant pipeline expansion. Management expressed confidence in achieving ~2X industry growth for FY26, underpinned by its platform-led strategy and proactive deal-making.

    Highlights

    5

    • Highest-ever quarterly TCV win of $760 million, with 68% AI-led, demonstrating strong deal-making momentum.

    • Direct business revenue grew 1.6% QoQ and 8.1% YoY in constant currency, indicating robust client mining.

    • BFS, Insurance, and TMT verticals collectively delivered 20%+ YoY growth in constant currency terms.

    • Client pyramid improved with 1 client added in $100M+ category and multiple additions in other large client bands.

    • Pipeline grew 16% QoQ and 84% YoY, signaling strong future growth potential.

    Concerns

    4

    • EMEA region declined 15.5% QoQ in constant currency due to a ramp-down of a global customer.

    • Logistics & Transportation vertical was impacted by customer-specific investments.

    • DSO increased by 9 days to 84 due to a marginal delay in collections from one customer, which has since been resolved.

    • EPS was impacted by higher ETR due to certain 'Minimum tax expenses' in subsidiaries, expected to normalize.

    Key financials

    Single quarter

    06 metrics
    1. 01Revenue437 Mn+6.5%YoY
    2. 02Direct Revenue Growth—+8.1%YoY
    3. 03EBIT Margin15.3%
    4. 04EPS₹23.2+8.5%YoY
    5. 05Operating Cash Flow24 Mn

    Segment breakdown

    Direct Business Contribution
    97% Share of Total Revenue
    US (Direct)
    10.3% Growth3.2% Growth
    EMEA (Direct)
    -15.5% Growth
    RoW (Direct)
    30% Growth6.8% Growth
    Application (Direct)
    3.6% Growth
    BPO (Direct)
    -2.7% Growth
    ITO (Direct)
    -5.3% Growth
    BFS (Overall Company)
    18% Growth6.7% Growth
    Insurance (Overall Company)
    27.5% Growth20% Growth
    TMT (Overall Company)
    20.6% Growth2.4% Growth
    List

    Order Book

    high confidence

    Total Value

    USD 760 million

    as of 2025-06-30

    quantified

    Inflow this qtr

    USD 760 million

    Execution

    On average one to two quarters for conversion from TCV to revenue.

    Composition

    AI-led TCV(other)
    68.0%
    Large Deals ($100M+)(deal size)
    Large Deals ($50M+)(deal size)
    BFS(vertical)
    Insurance(vertical)
    TMT(vertical)

    Pipeline

    deal pipeline tcv

    Overall deal pipeline

    "The company is seeing growth momentum through resiliency and deal wins, with a focus on AI-driven growth initiatives and a record-level pipeline."

    Source:
    Prepared remarks

    Capital allocation

    3
    high confidence
    CategoryHeadline
    M&A

    Aokah

    acquisition · announced · Consideration ₹NaN (cash)

    M&A

    Locate Software

    acquisition · closed

    Liquidity

    Liquidity disclosed

    Operating cash flow was $24Mn for the quarter, impacted by a marginal delay in collections from one customer (since resolved) and annual incentive payouts. Normalized cash flow is around $46Mn.

    Guidance & targets

    2
    CategoryTargetPriority
    Revenue
    FY26 Industry Growth Multiple
    ~2X industry growth
    		Medium
    Margin
    EBIT Operating Margin Band
    14.75% to 15.75%
    		High

    What to watch in Q2 FY26

    5

    ETR Normalization

    remainder of FY26
    CurrentHigher ETR due to 'Minimum tax expenses'
    TargetNormalization

    Why it matters

    Normalization of ETR will positively impact EPS and overall profitability.

    Sequentially, there was an impact from higher ETR due to certain 'Minimum tax expenses' in certain subsidiaries, which we believe will normalize📎 through the remainder of FY26.

    Risks & concerns

    4
    RiskSeverity

    Global uncertainty, macroeconomic complexities, and geopolitical tensions

    These factors shape a cautious business environment and lead to deliberate decision-making by enterprises. — Management acknowledged

    medium

    Sophisticated cybercrimes

    An urgent priority for organizations to defend and protect. — Management acknowledged

    low

    Higher Effective Tax Rate (ETR) due to 'Minimum tax expenses'

    Impacted EPS in Q1 FY26 but is expected to normalize through the remainder of FY26. — Management acknowledged

    low

    Delay in collections from a customer

    Caused DSO to increase by 9 days to 84, but the issue has since been resolved. — Management acknowledged

    low

    Q&A highlights

    8

    “Sudheer, I think the way I would address that is that the direction of travel is absolutely in the right direction. I think we've recovered the business. We've had some headwinds to deal with in the last couple of years. Most of them, at least as we stand today, seem to be behind us. So, there's no reason to believe that this trajectory will not continue.”

    Analyst questioned if Mphasis could converge with higher growth rates of peers, and management confirmed positive trajectory but acknowledged ongoing uncertainties.

    asked by Sudheer

    2 min read6 chapters

    Detailed Narrative

    01

    Record Deal Wins and AI-Led Growth Momentum

    Mphasis achieved its highest-ever quarterly Total Contract Value (TCV) wins of $760 million in Q1 FY26, with a significant 68% of these deals being AI-led. This strong performance was supported by a robust deal pipeline that grew 16% QoQ and an impressive 84% YoY. The company's proprietary next-gen platforms, including NeoZeta, NeoCrux, and NeoSaBa, are instrumental in driving these AI-led opportunities, positioning Mphasis for continued growth in business transformation.

    02

    Resilient Revenue Performance and Direct Business Strength

    Despite a cautious business environment, Mphasis reported Q1 FY26 revenue of $437 million, reflecting a 1.0% QoQ and 6.5% YoY growth in constant currency. The Direct business, which accounts for approximately 97% of the total revenue, demonstrated strong momentum with 1.6% QoQ and 8.1% YoY growth in constant currency. This resilience is attributed to the company's strong client mining model and tech-led offerings, particularly in the US market which grew 3.2% sequentially and 10.3% YoY in Direct.

    03

    Key Vertical Performance and Client Pyramid Expansion

    BFS, Insurance, and TMT verticals were the primary growth drivers, all achieving over 20% YoY growth in constant currency. BFS grew 6.7% sequentially (8.1% in Direct), Insurance saw over 20% sequential and 27.5% YoY growth, and TMT grew 2.4% sequentially and 20.6% YoY. The client pyramid continued to improve, with the addition of one $100M+ client and multiple new clients in the $20M+, $50M+, and $75M+ categories, indicating successful client mining and expansion.

    04

    Stable Margins and Operational Efficiency Initiatives

    Mphasis maintained a stable EBIT margin of 15.3% in Q1 FY26, aligning with its strategy to balance growth investments with profitability. The company's shift towards fixed-price contracts and technology-induced services has enabled greater productivity with less headcount, contributing to operational leverage. While operating cash flow was $24 million, it normalized to $46 million after accounting for a temporary collection delay from one customer and annual incentive payouts, which also led to a 9-day increase in DSO to 84 days.

    05

    Strategic Investments and M&A Accounting for Vendor Consolidation

    The company made a strategic minority investment of $4 million for a 26% stake in 'Aokah', a GCC advisory firm, to enhance deal shaping and client engagement in the GCC space. Additionally, Mphasis engaged in a vendor consolidation initiative with 'Locate Software', which involved taking over people and contracts. This transaction is treated with M&A accounting, with costs amortized over the deal term and no goodwill recognized, reflecting a strategic approach to expanding capabilities and client relationships.

    06

    Outlook for FY26 and Continued Focus on AI-Driven Transformation

    Mphasis expects to achieve approximately 2X industry growth for FY26, building on its strong Q1 performance and consistent TCV-to-revenue conversion. The company reiterated its target EBIT operating margin band of 14.75% to 15.75%. Management emphasized its commitment to client-centricity, technology-led transformation, and leveraging its AI-driven offerings to navigate the evolving tech landscape and support clients in their digital and AI journeys.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.