Good visibility despite challenging macros
Quick Pointers:
- Strong deal wins of USD 390 mn, highest in last 7 qtrs.
- EBIT margin guidance narrowed to 14.75-15.75% from 14.6-16%
The revenue growth performance (+2.9% QoQ CC) exceeded our estimates (+2.5% QoQ CC). ~80% of its portfolio mix maintained a steady state, while the rest of its business mix (L&T and Others) reported a decline of 8% and 3% QoQ, respectively. The continued improvement in large deal wins (13 large deals in FY25) and meaningful conversion of those deals are supporting the growth within BFSI. Despite having booked record high deal TCV of USD390m (11% QoQ), the deal funnel still looks encouraging (26% QoQ and 86% YoY). Even BFS pipeline remains strong at 70% YoY that comes at the back of 58% YoY and 43% YoY recorded in Q3 and Q2, respectively. More importantly, the conversion rate from TCV to revenue is notable for MPHL, evident through sequential performance, which has been missing across its close peers despite having booked robust deal TCVs in earlier timeframe. The management was cautioning against second-order impact on BFSI which might get triggered in H2FY26 and hit the company-wide performance. However, the company’s strong participation in AI-led transformation (65% AI-led deal pipeline) and driving self-funded investments (onset of budget crunch), partly de-risking the inevitable investments in AI even if the adversity falls into H2. Additionally, the mortgage part has largely been stabilized (grew marginally over FY24), while Logistics and Transportation (~12 of revenue) remains the only challenge in its business mix. The margin guidance (14.75%-15.75%) has been narrowed (vs FY25) on account of: (1) prioritizing growth over margins (2) provisioning against large deal ramp ups, (3) cushioning clients against macro adversity and (4) building tech stack. We are baking in revenue growth of 5.5%/7.1% YoY CC with EBIT margin of 15.4%/15.7% for FY26E/FY27E. We are assigning 26x to FY27 EPS, translating to TP of 2,860. Retain BUY.
Strong Revenue growth: MPHL delivered strong revenue of USD 430.4 million, a 2.9% QoQ CC and 2.6% USD increase that beat our and consensus estimates (2.5% QoQ CC and 2.1% QoQ USD). This outperformance was largely driven by deal momentum in BFS (up 5.5% QoQ) and TMT (up 7.5% QoQ), which also mitigated the declines in logistics (down 8% QoQ) and other segments (down 3.2% QoQ).
Flat margin in Q4FY25: Despite strong revenue growth, the EBIT margin remained sequentially flat at 15.3%, falling short of our 15.5% estimate but in line with consensus estimates. The margin remained at the midpoint of 14.6-16% guidance for the second consecutive quarter. Looking ahead, MPHL aims to maintain its EBIT margin within the 14.75-15.75% range in FY26.
Deal Wins Momentum continues: In Q4, MPHL secured new deals with a Total Contract Value (TCV) of USD 390 million, marking an 11% QoQ increase and the highest in the past seven quarters. This strong deal momentum continued for the second successive quarter, with the company reporting total deal wins of USD 741 million in H2 FY25, a significant rise from USD 526 million in H1 FY25. This performance highlights the positive impact of the company’s focused investments in enhancing its deal pipeline and improving win conversion rates.
Valuations and outlook: The vertical and service line strengths are shaping up well led by the company’s rigorous efforts and strategic initiatives to drive incremental growth. We are factoring in a USD revenue CAGR of 6.2% and an Earnings CAGR of 10.3% between FY25-27E. The stock is currently trading at 25x and 23x its FY26E and FY27E earnings, respectively. We maintain our “BUY” rating with a TP of Rs. 2,860, arrived at by assigning a PE multiple of 26x to our FY27E EPS.