MphasiS Limited — Q1 FY26 earnings call

Call held 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

  • 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

  • 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

  1. Revenue 437 Mn +6.5%YoY
  2. Direct Revenue Growth — +8.1%YoY
  3. EBIT Margin 15.3%
  4. EPS ₹23.2 +8.5%YoY
  5. Operating Cash Flow 24 Mn
  6. DSO 84 days

What they filed

Q1 FY27: revenue up 20.7%, net profit up 54.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,355 2,350 2,248 2,237 2,367 +1%2,409 +3%2,454 +9%2,701 +21%
EBITDA527 538 469 403 531 +1%511 −5%522 +11%628 +56%
Net profit372 376 369 298 393 +6%339 −10%372 +1%459 +54%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

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

Order book

high confidence

Total value

$760 Mn

as of 2025-06-30 quantified

Inflow this quarter

$760 Mn

Execution

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

Composition

  • AI-led TCV (other) 68%
  • 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

high confidence
  • M&A Aokah Acquisition · Announced · Consideration ₹[object Object] (cash)

    To shift left in helping shape deals as clients start thinking about GCCs and to create new client engagements.

    Minority investment for 26% stake in a GCC advisory firm.

    We made a minority investment. We put in $4 million for a 26% stake, with a view that we will essentially have an opportunity to shift left in helping shape deals as clients start thinking about GCCs and the various shapes and forms that it takes.
  • M&A Locate Software Acquisition · Closed

    Vendor consolidation initiative, taking over people and contracts from the customer.

    Treated with M&A accounting, no goodwill, deal economics amortized and meets margin threshold.

    It's not an acquisition. It's basically a vendor consolidation initiative where we have taken over the people and the contract has been given by the customer to us. So of course, the accounting treatment and the disclosure follows an M&A accounting. Typically, we don't take over an entity. We are not even rebadging. We are hiring people, and the contract comes with the customer. And there is a contingent consideration for the person who used to run that business. And therefore, it takes the nature of M&A accounting. There will be no goodwill. It all flows through the P&L, and the deal economics factors this cost which gets amortized and meets the margin threshold. So, it's something that we've done in the past and it's one more of that.
  • 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.
    Operating Cash flow generation was at $24Mn for the quarter. Cash flow for the quarter was impacted by a marginal delay in collections from one of our customers due to changes in their internal systems, which has since been resolved, and due to the annual incentive payouts, which are typical in Q1. Adjusting for these, normalized cash flow is around $46Mn for the quarter.

Guidance & targets

Revenue

  • FY26 Industry Growth Multiple Revenue · FY26 · Medium confidence ~2X industry growth
    For FY26, we expect to be at ~2X industry growth, on the back of our Q1 performance and steady conversion of TCV to revenue, and the steady ramp-up of large deals in ongoing quarters.

    — Nitin Rakesh

Margin

  • EBIT Operating Margin Band Margin · FY26 · High confidence 14.75% to 15.75%
    Our target EBIT operating margin would be within the band of 14.75% to 15.75%.

    — Nitin Rakesh

What to watch in Q2 FY26

ETR Normalization

remainder of FY26
Current Higher ETR due to 'Minimum tax expenses'
Target Normalization

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

  • Global uncertainty, macroeconomic complexities, and geopolitical tensions

    medium

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

    Management acknowledged

  • Sophisticated cybercrimes

    low

    An urgent priority for organizations to defend and protect.

    Management acknowledged

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

    low

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

    Management acknowledged

  • Delay in collections from a customer

    low

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

    Management acknowledged

Q&A highlights

7 direct
Logistics & Transportation growth recovery and convergence with peers Partial
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

Weak spots in BFS, Insurance, or TMT verticals Direct
As we stand today, the answer is no, we don't see any of those weak spots. And I think our approach to dealing with any headwinds has been just sell our way out of that by actually creating deals using the propositions and differentiation and using that momentum to work around these issues. But as we stand, nothing is imminent.

Analyst probed for potential risks in key growth verticals, and management provided a clear, confident 'no' regarding imminent weak spots.

Asked by Sudheer Guntupalli

Fatigue in deal booking despite strong TCV wins Direct
Sudheer, again lead indicator is pipeline. We've broken out the pipeline by BFS, non-BFS. We've broken out the pipeline by top 10, non-top 10. And I don't think we use the word fatigue in dealmaking in our lexicon because that's just not the way we can sustain the growth.

Analyst questioned the sustainability of deal wins, and management reassured by highlighting robust and diversified pipeline growth.

Asked by Sudheer Guntupalli

Sharp increase in 'other assets' on the balance sheet Direct
One is that under IFRS 15, where you have a fixed price project, where you have completed deliverable on a percentage of completion, until the deliverable is accepted, it comes as contract cost. And as you know, you've seen a sharp increase in our fixed price revenue. So that is one of the big contributors for this. The second element is some of the large deals requires savings to be kind of given upfront, which ends up being a contract acquisition cost.

Clarified a significant balance sheet movement, attributing it to IFRS 15 accounting for fixed-price projects and contract acquisition costs for large deals.

Asked by Sudheer Guntupalli

Structural changes driving strong deal wins and growth Direct
The reason I geeked out a little bit on this call when I explained to you what we did with a large financial services customer was to give you a peek of what kind of technical expertise is driving these kind of opportunities. I think gone are the days where clients had a need, you would meet that need through potentially a series of engagements that were in one shape or form... Today I think we are bundling a fairly sophisticated technology solution into every proposition.

Management detailed the strategic shift towards bundling sophisticated technology solutions, leveraging years of investment in Tribes & Squads, Next Labs, and Mphasis.ai, moving beyond traditional PxQ models.

Asked by Nitin Padmanabhan

Divergence between headcount and revenue growth, and sustainability of utilization rates Direct
If you've seen our business, we've seen a significant shift towards fixed prices, which kind of lends itself towards more productivity and ability to drive revenues with lesser headcount. Supply chain parameters are a little different than how we have historically looked at, right? It is a little more nuanced. It's not a single strategy of just hiring freshers and you playing the entire pyramid in that sense, right?

Explained that the shift to fixed-price contracts and technology-induced services allows for revenue growth with less headcount, making utilization less of a linear indicator.

Asked by Sulabh Govila

Nature of the strategic investment in 'Aokah' Direct
So, Sandeep, we made a strategic investment in a venture called 'Aokah' which is essentially a GCC advisory firm being setup by the ex-founder of the Neo Group. He still is a shareholder in the Neo Group, but they've decided to set up a separate venture to advise enterprises in the global GCC space. We made a minority investment. We put in $4 million for a 26% stake, with a view that we will essentially have an opportunity to shift left in helping shape deals as clients start thinking about GCCs and the various shapes and forms that it takes.

Clarified the purpose and financial details of a new strategic investment aimed at leveraging GCC advisory to generate new client engagements.

Asked by Sandeep Shah

INR12 billion increase in current quarter 'other assets' and its composition Direct
So, like I told Kawal, there is a split between what I would call will go into an unbilled revenue, right? Because it is unbilled revenue of the fixed price projects, which goes into contract cost right now and the rest of it would be a combination of some of the investments we have made on building IP as well as contract acquisition cost.

Provided a detailed breakdown of the 'other assets' increase, distinguishing between unbilled revenue from fixed-price projects and contract acquisition costs, which are key for understanding balance sheet movements.

Asked by Kawaljeet Saluja

2 min read 6 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

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