MPHASIS - Fundamental Analysis: Financial Health & Valuation

Last Updated Time : 05 Nov 25, 7:43 am

Fundamental Rating: 4.2

Mphasis is a fundamentally strong IT services firm with excellent return metrics, low debt, and consistent profitability. However, its valuation is stretched, and growth expectations are priced in. Long-term holding is justified, especially on dips.

📊 Financial Overview

• Profitability: PAT rose to ₹393 Cr from ₹298 Cr QoQ — 5.63% growth
• Margins: ROCE at 33.7%, ROE at 25.2% — excellent capital efficiency
• Debt Profile: Debt-to-equity ratio of 0.09 — very low leverage
• EPS: ₹75.6 — supports strong earnings base
• Dividend Yield: 2.06% — attractive for income-focused investors

📈 Valuation Metrics

• P/E Ratio: 36.5 — above industry average of 29.4
• P/B Ratio: ~9.0 — premium valuation relative to book value ₹307
• PEG Ratio: 4.99 — indicates overvaluation relative to growth
• Intrinsic Value: Estimated around ₹2,500–₹2,600 based on normalized earnings

🏢 Business Model & Competitive Edge

• Core Operations: Mphasis provides cloud, AI, and digital transformation services to BFSI, TMT, and logistics sectors
• Moat: Deep client relationships, strong delivery capabilities, and focus on new-gen services
• Growth Drivers: AI-led transformation, cloud migration, and large deal wins in insurance and TMT verticals

📌 Entry Zone Recommendation

• Suggested Entry: ₹2,500–₹2,600 — near intrinsic value and RSI support zone
• Technical Indicators: RSI at 46.8 (neutral), MACD positive — mild bullish momentum

📈 Long-Term Holding Guidance

• Hold for long-term if accumulated near support; monitor deal pipeline and margin trends
• Valuation needs to cool before aggressive accumulation

✅ Positive

• Strong ROCE and ROE
• Low debt and attractive dividend yield
• Consistent quarterly profit growth
• Record deal wins in H1 FY26

⚠️ Limitation

• High P/E and PEG ratios
• FII holding declined by 0.47%
• Premium valuation may limit short-term upside

📰 Company Negative News

• Stock corrected from ₹3,240 to ₹2,760 amid valuation concerns and sector rotation

🌟 Company Positive News

• Q2 FY26 net profit up 10.8% YoY; revenue up 10.3% to ₹3,902 Cr
• TCV of $528 million in Q2, with 87% from new-gen services

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🏭 Industry

• IT services industry P/E at 29.4 — Mphasis trades at a premium
• Sector driven by AI, cloud, and digital transformation demand

🧾 Conclusion

• Mphasis is a high-quality IT services firm with strong fundamentals and strategic growth drivers
• Accumulate on dips for long-term gains; monitor valuation and deal execution

Sources

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