Mphasis Q2 results

Mphasis Q2 Results: Revenue Beats Estimates, Margin Expands, €30 Million Investment Announced

Financial Performance:

• Revenue Growth: Mphasis reported a 3.3% increase in revenue, amounting to ₹3,536.1 crore, compared to the previous quarter. In constant currency terms, the growth stood at 2.4%, exceeding analysts’ expectations of 1.8%-2%.
• EBIT (Earnings Before Interest and Tax): EBIT rose to ₹544.2 crore, compared to ₹513.5 crore in Q1 FY2024, representing a sequential improvement.
• Net Profit: Mphasis recorded a 4.6% increase in net profit, reaching ₹423.3 crore on a sequential basis.
• Margin Expansion: The EBIT margin increased to 15.4%, expanding by 40 basis points compared to the 15% recorded in the previous quarter, which was in line with market expectations.

Segment Performance:

• Technology, Media, and Telecommunications (TMT): The TMT vertical posted 5.6% growth on a sequential basis, leading the company’s performance for the quarter.
• Banking and Financial Services (BFS): The BFS segment, which is a significant business for Mphasis, grew by 3.2% from the June quarter.
• New Deal Wins: The company secured deals worth $207 million in the quarter, which marked a 35% decline from Q1 due to a high base effect from the previous quarter.
• Client Performance: The top client grew by 8.6% sequentially, while the top five clients saw a slight decline of 0.9% during the same period.

Investment Plans:

• Mphasis announced an investment of €30 million in one of its business units, signaling plans for further growth and expansion in Europe.

Advantages of Mphasis Q2 Performance:

1. Revenue Beat: Mphasis surpassed market expectations with its constant currency revenue growth of 2.4%, reflecting solid demand in key verticals like TMT and BFS.
2. Margin Expansion: The increase in EBIT margin to 15.4% shows effective cost management and operating efficiency, crucial in maintaining profitability.
3. Strong TMT Growth: The 5.6% growth in the Technology, Media, and Telecommunications vertical demonstrates Mphasis’s strong foothold in this high-demand segment.
4. Top Client Growth: The 8.6% growth from the company’s top client indicates increasing reliance and deeper engagements with major clients, contributing to stable long-term revenues.
5. Strategic Investment: The planned €30 million investment in a business unit could enhance Mphasis’s service capabilities in Europe, a key market for IT and consulting services.

Disadvantages of Mphasis Q2 Performance:

1. Underperformance of Stock: Mphasis shares have underperformed in 2024, with just 7% gains year-to-date. Additionally, the stock declined by 8% in the one month leading up to the results, indicating a lack of investor confidence.
2. New Deal Decline: The 35% decrease in new deal wins compared to Q1 FY2024 is concerning, as it could reflect potential challenges in winning new business or increased competition in the market.
3. Top Five Client Decline: While the top client grew, the 0.9% decline in revenues from the top five clients may indicate potential issues in client retention or reduced spending from key clients.
4. Banking and Financial Services Growth: Although BFS grew by 3.2%, this was relatively modest, considering the importance of this segment in the company’s overall business portfolio.

Conclusion:

Mphasis delivered a strong Q2 performance, beating revenue expectations and expanding its margins, despite challenges such as a decline in new deal wins and underperformance of its stock. The company’s growth was driven by its Technology, Media, and Telecommunications vertical, while its BFS business posted modest gains. The investment of €30 million in a European unit signifies an intent to drive future growth in key international markets. However, investors may remain cautious due to the stock’s underperformance and concerns over declining deal wins.

FAQs:

1. How much did Mphasis’s revenue grow in Q2 FY2024?
   Mphasis reported a 3% growth in revenue in rupee terms, amounting to ₹3,536.1 crore, and a 2.4% constant currency growth.
2. What was Mphasis’s net profit for Q2 FY2024?
   The net profit for Q2 was ₹423.3 crore, a 6% increase on a sequential basis.
3. What is the EBIT margin of Mphasis for Q2 FY2024?
   Mphasis reported an EBIT margin of 15.4%, up by 40 basis points from the previous quarter’s 15%.
4. How did the Technology, Media, and Telecommunications (TMT) vertical perform?
   The TMT vertical grew by 6% on a sequential basis, leading the company’s growth.
5. What are Mphasis’s future investment plans?
   Mphasis plans to invest €30 million in one of its European units, signaling growth and expansion plans in the region.
6. Why did Mphasis’s new deal wins decline in Q2 FY2024?
   The 35% decline in new deal wins compared to Q1 was primarily due to a high base effect from the previous quarter.

Mphasis Q2 results

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