- Q4 FY24 Revenue: USD 410.7 million, a growth of 2.1% over the previous quarter in constant currency terms.
- FY24 Revenue: USD 1.61 billion, a decline of 6.5% over the previous year in constant currency terms.
- Direct Business Revenue: Accounted for about 95% of overall revenue in Q4 FY24 and for the full year.
- Q4 FY24 EBIT Margin: 14.9%, impacted by Silverline acquisition costs by 0.8%.
- FY24 EBIT Margin: 15.1%.
- Q4 FY24 EPS: INR 20.8, a growth of 5% sequentially.
- FY24 EPS: INR 82.4, a decline of 5.3% annually.
- Q4 FY24 Cash Flow Generation: USD 55 million, 116% of net income.
- FY24 Cash Flow Generation: USD 237 million, a growth of 56% year over year.
- DSO: 66 days, improved by three days over the previous quarter and by five days over the previous year.
- Final Dividend: INR 55 per share recommended by the Board of Mphasis.
- New TCV Wins FY24: USD 1.38 billion.
- Q4 FY24 TCV Wins: USD 177 million.
- Top 11 to 30 Customers Growth: 13% in FY24 versus the previous year.
- Large Deal Wins Growth: 73% in FY24 versus the previous year.
- Proactive Deal Pipeline: 76% of deals from proactive pursuits.
- Q4 FY24 BFS Growth: 2.6% sequentially.
- Q4 FY24 TMT and Logistics Growth: 4.5% and 2.2%, respectively.
- Others Vertical Growth: 21.6% year-over-year in Q4 FY24.
- Top 11 to 20 Clients Growth: 10.5% YoY.
- Top 21 to 30 Clients Growth: 17.3% YoY.
- New Client Acquisition Revenue Growth: 27%.
Release Date: April 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mphasis Ltd (NSE:MPHASIS, Financial) reported a sequential revenue growth of 2.1% in Q4 FY2024, indicating a positive trend.
- The company has a strong pipeline in cloud transformation and consolidation, with significant TCV wins amounting to $1.38 billion in FY24.
- Mphasis Ltd (NSE:MPHASIS) has been investing heavily in AI and automation, which has led to several successful engagements, including an AI-driven IT production support engagement for a top US bank.
- The company has diversified its revenue streams, with emerging verticals such as insurance, TMT, logistics, and transportation now accounting for 52% of revenue.
- Mphasis Ltd (NSE:MPHASIS) has shown strong operational cash flow, with cash flow generation at USD55 million for Q4, representing 116% of net income.
Negative Points
- Despite the positive trends, Mphasis Ltd (NSE:MPHASIS) reported a decline in full-year revenue by 6.5% over the previous year in constant currency terms.
- The company's top 10 accounts declined by 10.8% YoY on an LTM basis, impacted by macro conditions and regional banking issues.
- The EBIT margin stood at 14.9%, which was impacted by acquisition costs and losses in cash flow hedges.
- The TCV wins have been sequentially declining over the year, raising concerns about future deal closures.
- The mortgage segment remains stable but has not shown significant growth due to the unchanged interest rate environment.
Q & A Highlights
Q: Despite the strong positioning of the company on AI and the sequential improvement in the BFS industry, the TCV wins have been sequentially declining over the year. How do we see this trend going forward? How are we able to leverage our positioning in AI in terms of deal wins? Also, can you share any quantitative data on AI deal pipeline and revenue generated from AI?
A: We had a very bunched-up early part of the year with some very large deals getting bunched together in late Q1, early Q2. The pipeline is up 5% sequentially in Q4 over Q3, largely from rebuilding in BFS. On a full-year basis, TCV wins grew by about 5% in a challenging year. We are seeing a number of short burst deals, which are typically shorter than one year in duration. About 28% of our TCV was AI-led. We are working towards finding the best way to represent growth in AI business.
Q: In margins, was there some benefit that you guys received during the year from unknown reversal or other things, which gets accounted for in EBITDA? How should we look at it for the fourth quarter and for FY24?
A: There are investments and programs created to drive growth. Some of them fructify with costs getting paid out, and in some cases, since the performance does not match up, those monies don't get paid out. There is nothing out of the ordinary from a business-as-usual perspective. The reporting had to happen because of how accounting works for some of these transactions. It should not be seen as something directionally positive or negative from an EBIT perspective.
Q: When should we expect TCV to start growing again because that number is coming off quite sharply?
A: Large deals by definition will be lumpy. When you consume such a big number and there is a windfall quarter, you will see rebuilding of the pipeline through the phases. On a steady-state basis, the LTM average is something we are very confident that we'll reach back as we get through FY25.
Q: You indicated about increasing TAM by 57%, 58% in the last three years. If I look at our performance, our revenue growth trajectory is broadly in line with the industry. How should one reconcile these two numbers?
A: FY22 direct revenue growth was 36%, FY23 was 12%, and FY24 was -2.3%. Industry growth in those years was in the 16-20%, 6-8%, and 0-2% ranges respectively. On a three-year CAGR basis, we probably grew 2x the industry. This includes the impact of DR on the mortgage business. The TAM expansion is working in our favor, driven by large deal wins and a record 15 large deals in FY24.
Q: Depreciation has inched up sharply this quarter. Will this be the new normal or is there any one-off in this quarter?
A: The depreciation increase is not normal. You should expect it to be in the range as it was in the prior quarters.
Q: Can you provide some context on the New-Gen TCV, which is showing YoY decline on a TTM basis?
A: The New-Gen number in the 75% to 80% range is kind of the average. The rest comes from organic. Given the tech orchestration, people plus platform play, that will become the primary source of deal construction and deal wins.
Q: What is the outlook on hiring?
A: We are not building any large capacity at this point given that we have the ability to apply multiple levers. We are focused on a rolling 90-day forecast. We still have utilization that can be further improved. Significant investment is going into upskilling people, especially around Gen AI platforms.
Q: Can you provide some insights on the BFS direct segment excluding DR? What are the key trends and how do you see this segment playing out in the next two to three quarters?
A: Enterprises are looking at redesigning operations and technology using new capabilities. We are seeing shorter-term quick burst deals, especially in capital markets. Consumer banking is focused on experience transformation and cost takeout. Asset and wealth management is investing in data and Gen AI. The consumer lending segment is still stressed. We are focused on in-account actions and wallet share gains.
Q: How are BFSI customers reacting to the interest rate scenario being pushed out further? Is there any dependency on tech spend?
A: Higher for longer interest rates are here to stay. Bank earnings have not been significantly hurt by higher interest rates. It is an uncomfortable equilibrium. We are focused on in-account actions and wallet share gains.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
