Mphasis Q3 Results Review - Mortgage Business Volatility, Deal Pushouts To Weigh On FY25: Motilal Oswal

Motilal Oswal Report

Mphasis Ltd.’s Q3 FY24 organic revenue performance (-2.8% QoQ) was in line with our estimates owing to higher-than-usual furloughs and continued softness within the mortgage segment. Consolidated USD constant currency revenue growth was 1.0% QoQ, with direct revenue growth (including inorganic) of 2.0% QoQ CC.

The total contract value further moderated to $241 million, although the year-to-date TCV looks attractive at $1.2 billion (BTB at 1.0 times).

Mphasis’ revenue performance has been volatile over the last few quarters. The banking-heavy portfolio (~47% of revenue), with high dependency on discretionary areas, is hurting its near-term growth performance.

The selective pockets within banking, financial services (mortgage, international business, and capital market) have been under stress, which is leading to a volume pressure in the segment. Additionally, the uncertainty around the U.S. interest rates and its exposure to regional banks remain a headwind for its banking-heavy top-10 accounts.

Management indicated that the mortgage business has bottomed out in Q3 and has witnessed some structural improvement, which should aid the overall growth in Q4 FY24, along with a partial reversal of some of the furloughs impact given the ramp up in earlier wins within the segment.

We believe the interest rate uncertainty should keep the BFS clients under caution, before they start resuming their discretionary spending. Moreover, we believe the earlier investments to revive growth within the non-BFS accounts are yet to get materialized and reach a steady state.

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