Detailed Narrative
Strong Q4 FY26 Performance Driven by AI-First Strategy
Mphasis reported robust Q4 FY26 results with revenue reaching $463 million, marking a 2.5% sequential growth and 7.1% YoY growth in constant currency. For the full fiscal year, revenues grew 6.7% in constant currency terms. The company's AI-first strategy has been a key driver, with 69% of its pipeline and 64% of Q4 wins being AI-led. This focus translated into a record annual net new TCV of $2.1 billion, a 68% increase YoY, and $407 million in net new TCV for the quarter, including four large deals.
EBIT Margin Expansion and Shareholder Returns
The company's EBIT margin expanded by 20 basis points sequentially to 15.4% in Q4 FY26, with the full-year EBIT margin remaining stable at 15.3%. Operating profit for the quarter grew 7.2% QoQ and 15.0% YoY to INR 6,525 million, while EPS increased 8.6% sequentially and 13.7% YoY to INR 26.7. The Board recommended a dividend of INR 62 per share for FY26, reflecting strong financial performance and commitment to shareholder returns. Management aims to maintain margins within the 14.75% to 15.75% target band for FY27.
Vertical Growth Led by BFS and Insurance
The BFS vertical demonstrated strong performance, growing 5.8% QoQ and 15.0% YoY in Q4 FY26, with Direct BFS growing 17.4% YoY in constant currency for the quarter and 18.6% for the full year. The Insurance vertical also showed robust momentum, with Direct revenues growing 7.3% sequentially and 46.5% YoY in constant currency. These segments are increasingly adopting AI-led transformation programs, driving significant growth. The TMT vertical experienced near-term softness but is expected to return to sequential growth in coming quarters.
Strategic Investments in AI and Platform Capabilities
Mphasis is accelerating its AI capabilities through sustained investments, including the acquisition of Theory and Practice, which brought the Continuum AI decision intelligence platform. This platform is crucial for orchestrating AI-led execution across the enterprise, moving beyond isolated deployments to coordinated, end-to-end transformation. The company emphasizes that 80% of AI-driven transformation occurs outside IT, focusing on business outcomes like revenue optimization and demand forecasting, rather than just cost plays.
Working Capital and Cash Flow Management
Operating cash flow for Q4 FY26 was $21 million, which was temporarily impacted by $17 million due to system-related delays in customer remittances that were realized in early April. Adjusting for this, normalized operating cash flow was approximately $38 million. The company's DSO improved by a day, and contract assets have come down as milestones are accepted. Mphasis targets an operating cash flow to net income conversion ratio of approximately 80% for FY27, acknowledging the working capital investments required for large annuity deals.
Client Pyramid Strengthening and Diversification Efforts
Mphasis continued to strengthen its client pyramid, adding 1 client in the $150M+ category, 1 in $100M+, 1 in $75M+, 2 in $50M+, and 4 in $20M+ categories on a net new basis YoY. The company is also actively diversifying its client base and industry exposure, recently announcing a new leader for its global Insurance business and adding CPG and Retail sectors to its mix through the Continuum AI acquisition. This strategic focus aims to drive growth across various industry segments and geographies.