Mphasis Q3 in line; AI-led deal pipeline lifts FY27 growth hopes: Analysts

IT company Mphasis delivered a steady third-quarter performance for FY26 (Q3FY26), broadly in line with Street expectations, as resilient demand from banking and financial services clients and a sharply stronger deal pipeline offset margin pressures and seasonal weakness in select verticals. Brokerages remain divided on the stock, with optimism around AI-led deal momentum and FY27 growth visibility countered by near-term margin reinvestments and valuation concerns.

 

The IT services firm reported Q3FY26 revenue of $451 million, up 1.5 per cent quarter-on-quarter (Q-o-Q) and 7.4 per cent year-on-year (Y-o-Y) in constant currency (CC) terms. Growth was led by the Banking and Insurance verticals, which rose 2.5 per cent and 8.1 per cent Q-o-Q, respectively, while Technology and Media declined 2.3 per cent sequentially due to seasonality. Ebit margin came in at 15.2 per cent, down 10 basis points (bps) Q-o-Q, impacted by a one-time exceptional charge of ₹35.5 crore related to India’s new labour code. Earnings per share stood at ₹23.1, up 2.3 per cent Y-o-Y.

 

Nomura said the quarter was “largely in line,” noting that revenue growth was marginally ahead of its estimate and that margins were close to expectations. The brokerage highlighted Mphasis’s strong deal pipeline, which grew 91 per cent year-on-year, with nearly 69 per cent of deals led by artificial intelligence. Deal bookings for the quarter stood at $428 million, down 19 per cent sequentially but up 22 per cent Y-o-Y, including four large deals. Nomura expects USD revenue growth of 7-10 per cent Y-o-Y over FY26–27 and retained its ‘Neutral’ rating with an unchanged target price of ₹2,970, citing upfront investments during deal ramp-ups and a preference for peers such as Coforge.  ALSO READ | Cyient shares dip after 28% sequential decline in Q3 profit; details here 

Motilal Oswal also described the quarter as steady, with revenue growth and margins broadly in line with estimates. It pointed to a stronger exit into FY26, supported by a healthy total contract value and sustained demand from core clients. The brokerage expects revenue, Ebit and adjusted PAT to grow in double digits in the March quarter and reiterated its ‘Buy’ rating, valuing the stock at 30x FY28E EPS for a target price of ₹3,900. Management’s guidance of maintaining Ebit margins within the 14.75-15.75 per cent band was seen as achievable despite ongoing investments in platforms and capabilities.

 

JM Financial struck a more constructive tone, calling the current environment a “confluence of tailwinds” for Mphasis. It flagged robust performance in BFSI, top-five clients and applications services, alongside improving demand visibility. JM Financial highlighted rising wallet share at large BFSI clients, an expected pickup in mortgage-related activity at Digital Risk amid easing interest rates, and strong traction in AI platforms. While it raised growth estimates, it kept EPS largely unchanged due to higher hedge losses and finance costs. The brokerage maintained a ‘Buy’ rating, calling Mphasis its preferred mid-cap IT pick at current valuations. The brokerage has set a target price of ₹3,330  ALSO READ | Aditya Birla Sun Life AMC shares gain 7% intraday after Q3; details here 

Elara Capital echoed the positive outlook on deal wins and revenue visibility, noting that Mphasis’s pipeline has expanded 2.5 times since Q2FY24, with a healthy order book exceeding $300 million for five consecutive quarters. With over 60 per cent exposure to BFSI, Elara believes the company is well positioned to benefit from a strong earnings environment at US and European banks and sustained deal activity in those markets. 

PL Capital highlighted execution and ramp-ups as key to sustaining growth, noting that revenue growth exceeded its estimates due to timely conversion of large deals. While BFSI performance remained healthy, seasonality weighed on TMT and logistics. The brokerage expects margins to stay within guidance as investments in platforms and IPs continue, and maintains a ‘Buy’ rating with a target price of ₹3,480.

 

Therefore, brokerages agree that Mphasis’s AI-led deal momentum and BFSI-heavy portfolio underpin medium-term growth visibility, even as near-term margins remain range-bound. The debate now centres on how quickly large deal wins translate into revenue and whether AI-driven efficiencies can eventually lift profitability beyond the guided band.   

Disclaimer: The views or investment tips expressed by the brokerage in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.