Motilal Oswal remains positive on technology major Mphasis, arguing that fears around AI-led disruption are overstated relative to enterprise realities. The brokerage believes demand conditions remain stable, supported by large deal momentum of approximately USD 2 billion in TCV over the past four quarters. While AI is reshaping service delivery, its enterprise rollout is constrained by legacy integration, governance frameworks, and regulatory layers. Motilal Oswal projects USD revenue CAGR of ~10.8% and INR PAT CAGR of ~14% over FY25–28. Valuing the stock at 26x FY28E EPS, the brokerage arrives at a target of Rs 3,400 and reiterates its BUY recommendation.

AI Debate Running Ahead of Enterprise Reality

Management believes the AI narrative has advanced faster than real-world enterprise adoption. While generative AI tools have made dramatic strides in consumer-facing applications, their deployment in large enterprises remains constrained by legacy architecture, compliance controls, data governance, and cybersecurity frameworks.

Mphasis highlighted that AI today is largely augmentative rather than disruptive. It enhances developer productivity, testing automation, incident management, and analytics — but does not yet threaten large-scale revenue substitution.

Drawing parallels with the cloud transition post-2008, management suggested that what initially appeared disruptive eventually expanded IT services demand through modernization, migration, and security mandates.

Demand Environment: Stable, Not Exuberant

The company described the broader spending backdrop as stable. Cost optimization programs, selective digital transformation, and vendor consolidation continue to support deal pipelines.

For FY26, Mphasis is tracking roughly 15% growth (excluding logistics headwinds). Management acknowledged elongated decision cycles, but large-deal conversions are beginning to translate into revenue ramps.

Importantly, logistics vertical normalization should allow growth to realign with core business momentum, as reflected in recent quarterly data trends.

Large Deal Engine: USD 2 Billion TCV Momentum

Over the last four quarters, Mphasis secured approximately USD 2 billion in TCV wins. Management indicated that sustaining double-digit growth requires maintaining ~USD 2 billion TTM TCV, while high-teen growth would require USD 2.5 billion+ annually.

However, large deals typically follow a pattern:

Initial revenue acceleration

Subsequent normalization phase

Need for replenishment to sustain momentum

This underlines the importance of consistent deal flow rather than episodic mega wins.

Execution Agility as a Mid-Tier Differentiator

Unlike large-cap IT peers that operate through institutionalized frameworks, Mphasis emphasizes senior leadership involvement in USD 200–500 million deal cycles.

This allows:

Flexible commercial structuring

Custom solution architecture

Faster bid responsiveness

However, scalability could become a constraint if deal volumes accelerate materially, as leadership bandwidth is finite.

AI as a Catalyst for Application Modernization

Historically, Mphasis has skewed toward application development and maintenance work, with maintenance accounting for roughly 40–50% of revenues.

AI enables the company to:

Enter larger run/maintenance contracts

Improve automation leverage

Drive modernization alongside maintenance

Enterprise AI deployment often requires cleaning up legacy systems and improving data readiness — which naturally expands modernization workstreams.

Margins, however, will depend on pricing resets versus automation efficiency capture.

Financial Trajectory: Improving Earnings Visibility

Motilal Oswal forecasts:

Over FY25–28, the brokerage expects:

USD revenue CAGR of ~10.8%

INR PAT CAGR of ~14%

EBIT margins are expected to remain stable in the 15–15.5% range, reflecting disciplined cost management.

Balance Sheet Optics and Structured Deals

Investor scrutiny has centered on rising contract liabilities and working capital movements tied to structured large deals.

Management characterizes these as strategic investments designed to secure long-duration revenue streams. The CFO emphasized that evaluation should focus on:

Cash flow resilience

Return ratios

Sustainable free cash flow generation

Free cash flow remains healthy across forecast years, supporting dividend payout of ~60%.

Valuation Framework and Investment Case

Motilal Oswal values Mphasis at 26x FY28E EPS of Rs 132.2, arriving at a target price of Rs 3,400
Current valuations imply:

While near-term multiple expansion may be capped by AI-related uncertainty and terminal value debates, improving earnings visibility and deal conversion could gradually narrow valuation discounts versus peers.

Risks to Monitor

Prolonged AI-led pricing disruption

Slower-than-expected deal replenishment

Margin compression from automation-led repricing

Vertical-specific headwinds (e.g., logistics)

Final Word

Mphasis sits at the intersection of AI transformation and enterprise pragmatism. While headline narratives emphasize disruption, management underscores integration complexity and modernization demand.

Motilal Oswal believes the stock’s risk-reward remains attractive at current levels, supported by strong deal momentum, resilient BFSI exposure, steady margin outlook, and disciplined capital allocation.

With a target of Rs 3,400 and 47% upside potential, the brokerage reiterates its BUY call, positioning Mphasis as a mid-tier IT play with scalable execution strength and improving earnings visibility.