Apr'25 View on Mphasis Ltd

Mphasis a global Information Technology (IT) solutions provider specializing in providing cloud and cognitive services, applies next-generation technology to help enterprises transform businesses globally. • Q3FY25: Muted growth; recovery in deal wins aided by M&A. • Deal wins were healthy but were aided by an acquisition. • Challenges to top 10 persist and pose headwinds to management’s expectations of healthy growth in Q4FY25. • Headwinds in top 10 offset the recovery in discretionary spending in the largest vertical—BFSI. • Mphasis has underperformed peers on revenue growth in the last several years, which will continue in the medium term, in our view. • Stock trades at expensive valuations of 26x FY27E EPS. Retain SELL. Q3FY25 Earnings update: Positives: • EBITDA margin expanded 70 bps qoq to 19% (KIE estimate: 18.2%). • EBIT margin declined 10 bps to 15.3% (KIE estimate: 15.2%). • Net profit up 1.1% qoq & 14.6% yoy, topping our estimate by 0.6%. Negatives: • In c/c terms, revenue grew 0.2% qoq (KIE estimate: 0.8%).