GuruFocus -
- Revenue: Q2 FY 2025 revenue at $421 million, a growth of 2.4% sequentially in constant currency terms and 5.4% year over year.
- Direct Business Revenue: Accounted for 96% of overall revenue, increased by 2.4% sequentially in constant currency terms and grew by 6.2% year over year.
- EBIT Margin: Expanded sequentially by 40 basis points to 15.4%.
- Operating Profit: Grew 6% sequentially and 7.4% year over year.
- EPS: 22.4 for the quarter, representing a growth of 4.6% sequentially.
- Cash Flow Generation: $51 million for the quarter, 100% of net income.
- DSO: 73 days, increased by five days over the previous quarter.
- Deal Wins: Total contract value of $207 million for Q2, with three large deals in the quarter.
- Pipeline Growth: Overall pipeline up 23% year over year.
- Vertical Performance: BFS up 3% sequentially; TMT led growth with 5.4% sequentially.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mphasis Ltd (BOM:526299) reported a sequential revenue growth of 2.4% in constant currency terms, marking one of the best performances in recent quarters.
- The company has seen a significant increase in its pipeline, up 23% year over year, with 35% of the pipeline being AI-led initiatives.
- Mphasis Ltd (BOM:526299) has successfully executed three large deal wins in the quarter, contributing to a total of six large deals in the first half of the fiscal year.
- The company's direct business revenue grew by 6.2% year over year, with strong performance in the BFS and TMT verticals.
- Mphasis Ltd (BOM:526299) expanded its EBIT margin by 40 basis points to 15.4%, demonstrating effective cost management and operational efficiency.
- The company experienced a decline in the logistics and transportation segment, attributed to normal fluctuations in client spending cycles.
- There is a noted elongation in sales cycles for transformation deals, partly due to increased scrutiny on ROI and AI infusion.
- Mphasis Ltd (BOM:526299) reported a decrease in cash flow generation, attributed to delayed collections and dividend payouts.
- The company's DSO increased by five days over the previous quarter, indicating potential challenges in receivables management.
- Despite a strong pipeline, the total contract value (TCV) of deal wins was slightly lower than historical averages, raising concerns about deal conversion rates.
A: Nitin Rakesh, CEO: The fluctuation in the client bucket is normal and not a major concern. It's based on trailing 12-month data, and we expect it to revert in the next quarter or two. Our focus on growth through the next set of accounts is paying off, and we are well-positioned, which is why we've reiterated our full-year guidance.
Q: How do you see the mortgage business recovering given the interest rate changes?
A: Nitin Rakesh, CEO: The mortgage market is showing signs of recovery, but we don't expect a rapid recovery until interest rates fall significantly. We anticipate a gradual improvement, with some uptick in volume and increased customer conversations about refinancing in the coming months.
Q: Are you witnessing vendor consolidation, and how are you positioned to capture increasing wallet share?
A: Nitin Rakesh, CEO: We are always focused on protecting our wallet share in top accounts and gaining share in new accounts. Our declared offerings help us expand wallet share, and we are well-positioned to benefit from vendor consolidation, especially in IT operations and AI-led services.
Q: Can you elaborate on the adoption of AI and the NeoZeta platform?
A: Nitin Rakesh, CEO: Yes, 35% of our pipeline is AI-led, with a focus on modernization and AI infusion. NeoZeta helps map application landscapes and create knowledge graphs, aiding in application maintenance and enhancement. We see early adoption and are positioning ourselves as a partner of choice for AI adoption at scale.
Q: What is your outlook on margins and headcount for the second half of the year?
A: Aravind Viswanathan, CFO: We are confident in maintaining our margin range of 14.6% to 16%. Headcount growth will be based on business needs, and we have the flexibility to adjust as required. Our focus is on efficient utilization and converting headcount to billable resources.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.