Mphasis Ltd’s management is brimming with confidence. As the tier-two company navigates the March quarter (Q4FY25), it is eyeing its best sequential growth in 12 quarters. This optimism is driven by improved revenue conversion and robust deal wins, with the management of expecting FY25 growth to surpass industry average.
In the December quarter (Q3FY25), the total contract value (TCV) of new deal wins surged to a six-quarter high of $351 million. It bagged five large deals in Q3FY25, bringing the total large deal wins in 9MFY25 to 11. It also won a multi-year large deal of $100 million in January with a new BFS client. This deal will be executed over calendar year 2025.
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The management has highlighted that these deals would not dilute margins and maintained the FY25 earnings before interest and tax (Ebit) margin guidance at 14.6-16%. In Q3FY25, Ebit margin shrunk 10 basis points to 15.3%.
Mphasis is witnessing improved discretionary IT spending, particularly in its core banking, financial services (BFS), technology, media & telecom (TMT), and insurance verticals, with a gradual recovery in the mortgage segment.
“Based on our internal back calculations, we expect sequential constant currency (CC) growth of 4% in Q4FY25 and FY25 revenue growth of 4.9% year-on-year CC,” said Prabhudas Lilladher report on 24 January. In Q3FY25, sequential CC revenue grew 0.2% impacted by furloughs, but was largely in-line with already muted expectations.
On the flipside, challenges persist in the logistics and transportation vertical, which accounts for 12.2% of overall revenue. In Q3FY25, revenue in this vertical declined over 7% year-on-year and sequentially—its steepest drop in recent times. This is a relatively new vertical and caters to clients in logistics, airlines, shipping and railroads. According to the management, the vertical faced broad-based issues rather than client-specific setbacks.
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The non-airline business is highly exposed to global macro and supply chain headwinds which was a major reason for the decline, the management said. While the management feels challenges here are manageable and it is trying to offset them by chasing deals in airlines and other travel sub-segments, unless revenue recovers this can be a pain point.
“We are trimming (EPS for FY25 and FY26) estimates (< 3%) on slightly lower growth due to headwinds in logistics,” said Nuvama Research report dated 24 January.
Meanwhile, in the current financial year so far, the Mphasis stock has risen 24%, marginally ahead of Nifty IT index. At FY26 price-to-earnings, the stock is trading at a multiple of 29x, according to Bloomberg data. This is a steep discount to tier-2 peers Coforge Ltd and Persistent Systems Ltd trading at 43x and 55x, respectively.
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Mphasis has been underperforming peers on revenue growth lately, and its earnings growth is volatile, so against that backdrop valuation is expensive. This gap with competitors could narrow with sustained deal momentum and turnaround in the logistics vertical.
