Mphasis Q3 Financial Analysis: Banking and Financial Service Sectors Remain Uncertain

In a market where clarity is sought-after, Mphasis Limited's Q3 results have come under scrutiny. Despite a modest quarter-over-quarter revenue growth of 1%, there was a noticeable 6.3% dip year-over-year in USD terms, falling short of the anticipated $411 million by 2.2%. This shortfall was further compounded by the decline of organic revenue—approximately 2.8% from the previous quarter—exceeding the estimated 0.5% decline, marking what may be one of the most lackluster growth rates in the sector for the quarter.

Factors Affecting Mphasis' Quarterly Growth

The acquired entity, Silverline, made a contribution of nearly $15 million to the quarter's revenue. Nonetheless, Mphasis has experienced deeper than anticipated furloughs, leading to a contraction in organic revenue. Looking ahead, Mphasis anticipates a rebound from these furlough effects in Q4 and expects additional growth thanks in part to an uptick in discretionary spending, with a special nod to projects tied to artificial intelligence.

Future Outlook and Recommendations

With Q3 wrapped up, earnings per share (EPS) estimates for Mphasis have been adjusted downward, primarily due to lower revenue projections. In the wake of these figures, the advisory stance remains at 'Sell' with a target price pegged at Rs 1,825. This valuation, set at 16 times the projected FY26 EPS, takes into account a 20% discount when measured against sector leader Tata Consultancy Services Ltd., attributable to concerns over Mphasis' client concentration, sector focus, and ROI comparisons.

Investors and stakeholders are expected to watch closely as Mphasis navigates market volatility, particularly within the mortgage business, and addresses challenges such as deal deferrals that could influence its FY25 performance.

Mphasis, Quarterly, Banking