MPHASIS - Mphasis Limited Share Price

In the Q4 FY25 earnings call, management set an optimistic outlook for FY26, emphasizing their commitment to focusing on growth initiatives despite macro uncertainties. They expressed confidence in sustaining revenue growth through strong TCV wins, illustrating that the total contract value (TCV) for the quarter was $390 million"”the highest in the past seven quarters. They expect revenue growth to remain above the industry average, with targeted EBIT margins projected to be in the range of 14.75% to 15.75%.

Key forward-looking points include:

1. Growth by Sector: Management highlighted a significant increase in their AI-led deal pipeline, which has risen from 25% in Q4FY24 to 65% in Q4FY25. They aim to continue benefiting from strong TCV wins driven by modernization and consolidation opportunities, particularly in BFS and TMT verticals.
2. Pipeline Metrics: They reported an overall pipeline growth of 86% YoY, with large deals pipeline growing by 154% YoY. BFS pipeline increased by 70% YoY, while non-BFS saw a remarkable 99% YoY growth.
3. Revenue Performance: Q4 FY25 revenue was $430 million, marking a 2.9% sequential growth and a 5.4% YoY increase in constant currency. Direct revenue rose 3.8% sequentially.
4. Investment in AI: They reaffirmed their ongoing investment in AI platforms and solutions to enhance customer experience and operational efficiency. They emphasized that AI is now an integral component of their service delivery and deal-making strategy.
5. Future Expectations: Management anticipates sustaining the momentum from Q4 FY25 into Q1 FY26, with healthy TCV and pipeline metrics supporting strong revenue growth.

This outlook reflects Mphasis's strategic focus on leveraging technology-led solutions to drive sustainable growth in a challenging environment.

Here are the major questions and their respective answers from the Q&A section of the Mphasis Q4 FY 2025 earnings call:

1. Question: Have you seen any major drop-off in client conversion rate or deal bookings due to tariff volatility?

   • Answer: The impact of tariffs has been nuanced, affecting industries like logistics and manufacturing directly. However, sectors like BFSI remain more insulated, experiencing second-order effects related to economic outlooks. While decisions are being delayed, particularly in impacted sectors, Mphasis remains relatively stable due to diversification in our client base, which includes significant BFSI exposure.

2. Question: Is the decline in Logistics revenue broader than just one or two accounts?

   • Answer: Yes, the decline is broader than a couple of accounts and is influenced by current macroeconomic conditions affecting decision-making in global trade. Nevertheless, we see healthy pipeline growth in Logistics and plan to recover that vertical's performance throughout the year.

3. Question: What is the driving force behind TMT vertical growth, and how might it be impacted by macro uncertainties?

   • Answer: Growth in the TMT vertical stems from ramping up revenue from previous large deals and expanding wallet share across existing clients. Despite some manufacturing uncertainties, our diverse client base and the recent pipeline's strength position us well for continued growth.

4. Question: Have conversations around deal closures changed in light of tariff uncertainties?

   • Answer: There's a mixed impact; some sectors experience hesitance in committing to programs due to uncertainty, while others are less affected. Overall, our diversified client base mitigates these risks, allowing us to maintain positive momentum into the next quarters.

5. Question: Given potential interest rate cuts, do you foresee an uptick in the mortgage business?

   • Answer: It's challenging to predict exact outcomes. While there is customer interest in AI to enhance loan operations, actual volume growth remains uncertain given fluctuating interest rates. We see some stability in the segment, supported by a focus on efficiency through AI.

6. Question: Are you comfortable with the pace of deal ramp-ups, or are there delays?

   • Answer: The situation varies by client; some deals ramp up quickly, while others experience delays. External volatility complicates decision-making, but we're focused on adding value and aligning with clients' transformation agendas, which aids in overcoming these challenges.

7. Question: Is there any large client-specific issue impacting growth as you enter FY26?

   • Answer: Client-specific challenges exist, but we're monitoring the overall portfolio. Our pipeline's strength suggests positive conditions for revenue conversion moving forward. The focus remains on managing client relationships to ensure growth.

8. Question: Do you anticipate consistent performance going forward?

   • Answer: While we aim for improved consistency, it's challenging to guarantee every quarter will perform similarly. Our strategy focuses on converting a strong pipeline into revenue to drive sustained growth.

9. Question: What is driving margin performance despite declining revenues in logistics?

   • Answer: We've managed costs effectively, demonstrating variable margins across sectors. Our focus on optimizing operations and resource allocation allows us to maintain healthy margins even as revenues fluctuate.

10. Question: Considering pipeline strength, can we maintain a TCV run rate around $350 million in FY26?

    • Answer: This is a reasonable expectation, given our strong large deal pipeline. However, external factors could impact the situation, so we must remain vigilant and adaptive in our strategy.

Each response above provides insights into Mphasis's recent performance and outlines potential challenges and strategies moving forward.