Mphasis Q4 net profit jumps 13.6% y-o-y; CEO bets on value-led growth amid static tech spending

An overall commentary on your Q4 and FY25 results?

Q4 was pretty decent. We had our best quarter in terms of sequential growth in the last three years. Overall, company grew 2.9 per cent sequentially and direct business, 3.8 per cent sequentially. Growth was led by banking, insurance, and TMT. For the year, we’ve done a decent above-market growth of about 5.5 per cent. Direct business grew higher.

Q4 TCV was $390 million net new, which is also the highest in the last seven quarters. Our pipeline is at a record level, up almost 85-86% y-o-y and about 26 per cent sequentially. The deals are pretty broad-based across sectors. We had 13 large deals in the year, two of which were in the last quarter. One was a $100 million-plus deal. The EPS was also the highest ever for the year. We had a 9 per cent growth in EPS in FY25.

While the environment is fairly uncertain and volatile, the momentum is driven more by having the right propositions, baking the right set of technology solutions and aligning them to every account, and customer. It is not quite the heydays of growth we’ve seen in the past, but a better trajectory and acceleration towards the end of the year is welcome.

While some of your peers reported a revenue or PAT decline, you saw the opposite. What has worked in your favour?

One is the focus on the micro amid an uncertain macro. We went account by account, client by client, proposition by proposition, structured the right solution, and bundled it into the right construct. We follow what we call a client-value framework, where we try not to play the pricing game, but the value game. We applied savings net transformation and created propositions that align with customer priorities. These are some activities we’ve been driving for the last few quarters.

Second, it all boils down to closing deals. Can you consume the TCV you sold and convert that to revenue? If those deals are profitable, there will be growth in earnings. It’s a very bottoms-up approach to the business. This is not about discretionary spending picking up, because of which we managed to gain a growing share of the pie which is static. Even if tech spending is steady, they are being repurposed along these strategic priorities, aligning which becomes important.

What are some client conversations around the recovery of discretionary spending? Do you see this coming back anytime soon?

The tide isn’t rising and not everybody is spending more money like they did 3-4 years ago. Since 2022, the cycle has been more around optimisation of costs and prioritisation of their spends. We called it a reduction or tightening of discretionary spend.

Clients have started thinking differently about how they want to derive value from tech or operations. They are saying that if they are spending this much money on running their operations, why are there so many incidents? Why can’t they make it more of an AI-driven resilient operation?

We are moving away from being a service provider to being a solutions provider. And in that environment, we are not expecting the spends to come back to what they were earlier. The budgets are not going down, but there will be a reprioritisation of how they get spent, who they get spent with, and what outcome and value the client will derive.

That is the new reality. And AI implementation means human effort reduction, meaning we will have to find other propositions that are not human effort dependent. That is the simple migration in the industry right now.

Are you seeing any tailwinds or green shoots?

Regarding tariffs and macro and global trade, the good news is banks probably are the biggest exporters of financial services from the US given they operate globally. They only are subject to second-order impact, which means they suddenly will not have to pay tariffs since they are not producing a product.

For our portfolio, having 60 per cent BFSI is a bit of a blessing at this point. Having said that, there is no place to hide. Nobody is immune to these shocks. But it’s a second order impact versus a direct impact.

Consumer sentiment points out that the economic data might start changing if this uncertainty lasts longer. For now, banks are pretty stable. They will continue spending in strategic priority areas and not throw money at projects like they once did.

The US accounted for a significant share of your revenues in FY25 at 81per cent. Are you seeing any reduction in your reliance amid uncertainties?

The US is our home market. We were born in the US and serve some of the best brands in the country across multiple sectors. I don’t think the differential impact on exposure is that high that we have to suddenly start taking all our dollars and start putting them into other markets.

We are committed to continue growing in this market. Having said that, we also continue to find diversification. The US was 80 per cent of our revenue when we were a third of our size and continues to be so. This means the rest of the world is also growing at the same pace, if not faster.

We have a plan of diversification that we are executing around Europe. We’ve diversified our supply chain with locations outside of India and the US. We are also diversifying our industries. So, we invested in the enterprise vertical strategy in 2021, which is TMT was our fastest-growing industry this year because we are not just focused on growing the banking business. So, Banking, non-banking, top 10, non-top 10, U.S., non-US are the three levels of diversification we are playing.

How have mid-tier companies like yourself been outpacing your larger counterparts in terms of growth?

In the last 25-30 years, with every tech pivot, new players emerge and capture a higher share of the wallet, or the market itself, like when the internet became a thing or with the emergence of Indian IT.

This is because the democratisation of access enabled customers to be served from anywhere in the world, and suddenly a lot of market share came towards Indian IT. That’s how we gained as an industry at the expense of global SIs who were US-centric.

Over the last 10-12 years, when the digital wave started, we saw the emergence of many peer group companies, but also Eastern European companies because they were born in the digital age, and were agile and data-centric.

Not everybody in the industry was growing at the same rate, especially in 2017-20. Now that we are going through a significant refresh with AI, with everybody at the starting line, size doesn’t matter, but the ability to adopt new tech, and go deep in does. It’s getting more nuanced with the depth of tech, and the ability to create new solutions and propositions that give you an advantage or a differentiation becomes more important.

We are winning because we are taking the right solutions, have the right tech apps, and have the right ideas and platforms around the implementation of AI. Hence, we are starting to see benefits

What is the company’s outlook for FY26?

We expect to grow faster than the industry. Based on everyone’s earnings and the guidance, it seems to be not much better than last year and might be tough to beat last year’s number at an industry level. Since it is early in the cycle, and given the uncertainty, we probably will have a better idea post-Q1, but at this point, we believe we can grow faster than the industry and that we can better our own performance from FY25.