Technology and Telecom Business Drives Revenue Growth While Nomura Retains 'Buy' Rating with ₹2,620 Target Price

Shares of Mphasis Ltd. gained more than 3% during Monday's trading session after the IT services company reported an in-line set of first-quarter FY27 results that reflected resilient revenue growth despite temporary pressure on operating margins. The company's performance was supported by strong execution in its Technology, Media and Telecom (TMT) vertical, while management reaffirmed its confidence in achieving its profitability guidance for the full financial year.

Following the earnings announcement, global brokerage Nomura retained its 'Buy' recommendation on the stock, stating that Mphasis continues to benefit from a healthy deal pipeline, improving demand for digital transformation services and long-term opportunities in artificial intelligence, cloud computing and enterprise modernisation. Although the brokerage marginally reduced its target price to ₹2,620 from ₹2,640, it still implies a potential upside of around 12% from current market levels.

The quarterly performance indicates that while global macroeconomic challenges continue to influence client spending, Mphasis remains well positioned to capitalise on the gradual recovery in enterprise technology investments.

Revenue Growth Remains Healthy in Q1FY27

Mphasis reported steady top-line growth during the June quarter, largely meeting market expectations.

Q1 FY27 Financial Snapshot

On a sequential basis:

• Revenue increased 3.3% quarter-on-quarter.

• Net profit declined 3.9% due to lower operating margins.

• Revenue remained broadly in line with analyst estimates.

The strong year-on-year revenue expansion demonstrates continued demand for the company's digital engineering and cloud-based services despite a cautious global business environment.

Technology, Media & Telecom Segment Leads the Growth Story

The standout performer during the quarter was the Technology, Media and Telecom (TMT) business.

According to management and analyst commentary:

• Revenue from the TMT segment grew by more than 15% sequentially.

• Growth was driven by the execution of recently secured large client contracts.

• Strong demand for cloud migration and digital engineering services supported business momentum.

The TMT vertical has become one of the company's fastest-growing business segments and is expected to remain a key contributor to future revenue growth.

Logistics Vertical Faces Temporary Headwinds

Not all business segments performed equally well.

The Logistics vertical reported a decline of nearly 16% quarter-on-quarter, reflecting:

• Global macroeconomic uncertainty.

• Geopolitical disruptions.

• Slower client technology spending.

• Delays in project execution.

Management believes these challenges are cyclical rather than structural and expects activity to gradually recover as business conditions improve.

Operating Margins Under Pressure

Although revenue growth remained encouraging, profitability softened during the quarter.

The company's EBIT margin declined to 14.8%, primarily because of:

• Ramp-up expenses related to recently won large contracts.

• Integration costs associated with the TAP acquisition.

• Lower employee utilisation as the company prepared for anticipated business growth in subsequent quarters.

These investments temporarily affected margins but are expected to support stronger revenue generation over the medium term.

Management Reaffirms FY27 Profitability Guidance

One of the biggest positives from the earnings announcement was management's decision to maintain its operating margin outlook for FY27.

FY27 Margin Guidance

• EBIT Margin expected between 14.75% and 15.75%

The company believes margins should improve as:

• New client engagements mature.

• Employee utilisation rises.

• Integration costs gradually decline.

• Insurance business profitability normalises.

Management expects the temporary pressures experienced during the June quarter to ease over the next two quarters.

Insurance Business Expected to Recover

The insurance vertical, which experienced some profitability pressure during the quarter, is expected to stabilise in the coming months.

Management indicated that:

• Operational efficiencies are improving.

• Client demand remains stable.

• Margins should recover over the next two quarters.

Insurance continues to be one of Mphasis' strategically important verticals, particularly given the ongoing digital transformation within global financial services.

Nomura Retains Positive View

Following the quarterly results, Nomura maintained its constructive stance on the company.

Brokerage View

The brokerage revised its FY27 and FY28 earnings estimates marginally after incorporating the latest quarterly numbers but believes the company's long-term growth story remains intact.

Nomura expects improving execution, better margins and continued deal wins to support earnings growth over the next two financial years.

Digital Transformation Continues to Drive Demand

Mphasis continues to benefit from rising global investment in digital technologies.

Its service portfolio includes:

• Cloud transformation.

• Artificial Intelligence.

• Data analytics.

• Cybersecurity.

• Enterprise application modernisation.

• Digital engineering.

• Customer experience solutions.

These services remain key priorities for global enterprises looking to improve operational efficiency and enhance customer engagement.

Large Deal Pipeline Remains Encouraging

The company continues to build a healthy order pipeline across multiple industries.

Key demand drivers include:

• Cloud migration projects.

• AI-led automation.

• Digital banking transformation.

• Enterprise software modernisation.

• Technology infrastructure upgrades.

As client confidence gradually improves, these opportunities are expected to translate into stronger revenue visibility over the coming quarters.

Share Price Responds Positively

Investors welcomed the company's stable earnings performance.

Market Performance

• Shares rose more than 3% during intraday trading.

• The stock traded around ₹2,344 during afternoon trade.

• It outperformed the broader benchmark indices during the session.

The positive market reaction indicates that investors viewed the earnings as largely reassuring despite temporary profitability pressures.

Growth Opportunities Ahead

Several long-term trends continue to support Mphasis' business outlook.

Key Growth Drivers

• Expansion of Artificial Intelligence adoption.

• Rising cloud computing investments.

• Increasing enterprise digitalisation.

• Healthy large-deal wins.

• Growing demand from financial institutions.

• Margin improvement.

• Better employee utilisation.

• Cross-selling opportunities from acquisitions.

These factors provide a strong foundation for sustainable medium-term earnings growth.

Risks Investors Should Watch

Despite the positive outlook, several external risks remain.

These include:

• Global economic slowdown.

• Delayed client technology spending.

• Margin pressure from wage inflation.

• Currency fluctuations.

• Geopolitical uncertainty.

• Integration risks following acquisitions.

• Slower discretionary IT budgets.

The pace of recovery in global enterprise spending will remain one of the most important variables influencing the company's future performance.

Indian IT Sector Outlook

The broader Indian IT industry continues to witness gradual improvement after a period of cautious client spending.

Current industry trends include:

• Stronger AI-related investments.

• Stable cloud spending.

• Healthy deal pipelines.

• Improving technology budgets.

• Greater focus on automation and digital transformation.

These structural themes are expected to continue supporting leading IT services companies over the long term.