- Mphasis' deal wins are offset by client losses and slow revenue conversion, says CLSA
- CLSA initiates coverage with hold rating and Rs 2,120 target price for Mphasis
- Future growth depends on deal conversion pace and core financial services segment recovery
Mphasis Ltd.'s deal wins are not translating into sustained growth, with client losses and slow conversion offsetting new business, according to CLSA.
The brokerage initiated coverage with a "hold" rating and a target price of Rs 2,120, implying about 4% upside from the last traded price. The view contrasts with the broader analyst consensus tracked by Bloomberg, which implies a 36% upside.
The report points to a gap between strong deal activity and modest financial performance. Revenue rose 2.6% sequentially to Rs 4,003 crore in the October-December quarter, while profit fell 5.7% to Rs 442 crore. Margin remained largely unchanged near 15%, continuing a stable but flat trend over the past four quarters.
CLSA's assessment centred on whether recent deal wins are adding to growth or replacing business lost from existing clients.
Client Churn Risk
Mphasis has reported steady deal wins and a growing pipeline, driven in part by its AI-led platform strategy. "Our LTM TCV has doubled in the last four quarters," with pipeline growth led by large deals and AI-led opportunities, the management said in its latest earnings call in January.
However, CLSA said these gains are being offset by client losses and declining wallet share in parts of the business. The brokerage flagged that revenue growth remains limited despite higher deal activity, suggesting that new contracts are compensating for attrition rather than driving expansion.
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Management commentary indicated that the deal conversion varies by contract type and can take time. "The conversion of deals is a little bit more nuanced based on nature... in some cases... a three to six-month ramp," the company said.
This lag between deal wins and revenue contribution, combined with client exits, has kept overall growth contained.
Limited Leverage
Margin have remained stable within a narrow range, even as the company scales its deal pipeline. EBIT margin stood at 15.2% in Q3, compared with 15.3% in the previous quarter.
Management said AI-led deals could improve efficiency over time. "The approach will definitely mean that we have operating leverage," Chief Executive Officer Nitin Rakesh said.
At the same time, the company indicated that gains are being reinvested. "Whatever leverage we are getting, we are investing it back," he said.
This has limited margin expansion despite revenue growth and higher deal activity.
Mphasis continues to see demand linked to AI-led transformation and cost optimisation. Clients are "reprioritising their spending... focusing on must-have capabilities and creating efficiencies," the company said.
The brokerage said the outlook depends on improvement in its core banking, financial services and insurance segment and on the pace of conversion of deal wins into revenue.
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