Mphasis grows revenue but margin slips as costs outpace sales
Sequential profit fell as tax and other-income movements offset broadly flat operating profit; management maintained FY27 guidance.
Filed 23 Jul 2026, 23:47 IST · after market close · Mphasis Ltd (MPHASIS)
Key takeaways
- Consolidated revenue grew +17.46% year on year, but expenses grew faster at +18.16%, narrowing operating margin by 0.51 percentage points.
- Net profit fell -3.95% sequentially as the tax rate rose 3.11 percentage points and other income declined -23.22%.
- The stock rose +2.22% after the results, broadly in line with its 3.1% median move after the last eight results.
Price around the results
Revenue growth did not translate into operating leverage
Mphasis reported consolidated revenue growth of +17.46% year on year in Q1FY27, while operating profit grew at a slower +13.57%. Expenses rose +18.16%, faster than revenue, reducing operating margin by 0.51 percentage points to 14.79%. The margin was 0.95 percentage points below the 15.74% median for 12 reported information-technology peers.
Sequential profit was diluted by tax and other income
Revenue increased +3.33% sequentially, but expenses rose +4.00%, cutting operating margin by 0.55 percentage points and leaving operating profit down -0.35%. Net profit fell -3.95% even as interest expense declined -37.26%, because other income dropped -23.22% and the tax rate rose 3.11 percentage points. Other income contributed 12.14% of pre-tax profit, making it a material part of reported earnings quality.
Margin recovery in Q4FY26 was reversed
Operating margin had improved to 15.34% in Q4FY26 after declining from 15.30% in Q1FY26 to 15.17% in Q3FY26, but fell to 14.79% in Q1FY27. Year-on-year net profit still grew +10.82%, though the 0.71-percentage-point increase in the tax rate and higher interest expense limited the conversion of operating growth into profit growth.
Management points to deal activity while retaining guidance
Management said direct revenue grew 2.2% sequentially and 9.9% year on year, with APPS growth driven by AI-led modernisation deals. The company reported $461 million of net-new TCV, including three large deals, and said its pipeline grew 8% sequentially and 28% year on year. Management said it maintained FY27 revenue and margin guidance, including a 14.75%-15.75% margin target, and expects Q2FY27 to show accelerated momentum.
The initial stock reaction was within its usual range
The stock rose +2.22% after the results, with a +0.65% opening gap and a +2.65% relative move. Its last eight result reactions included five rises and three falls, with a median absolute move of 3.1%, so the latest move was ordinary rather than unusually large.
Q1FY27 at a glance
Consolidated figures as filed with NSE — cross-checked against an independent source.
| Line item | Q1FY27 | Q4FY26 | QoQ | YoY |
|---|---|---|---|---|
| Revenue | ₹4,384 cr | ₹4,243 cr | +3.33% | +17.46% |
| Other income | ₹83 cr | ₹108 cr | -23.22% | +2.36% |
| Expenses | ₹3,736 cr | ₹3,592 cr | +4.00% | +18.16% |
| Operating profit | ₹648 cr | ₹651 cr | -0.35% | +13.57% |
| Operating margin (%) | 14.79% | 15.34% | — | — |
| Interest | ₹49 cr | ₹77 cr | -37.26% | +16.02% |
| Depreciation | ₹147 cr | ₹153 cr | -3.76% | +11.48% |
| Profit before tax | ₹683 cr | ₹681 cr | +0.21% | +11.92% |
| Tax | ₹193 cr | ₹172 cr | +12.58% | +14.79% |
| Net profit | ₹490 cr | ₹510 cr | -3.95% | +10.82% |
| EPS (₹) | ₹25.65 | ₹26.73 | -4.04% | +10.47% |
Operating margin of 14.79% compares with a Information Technology sector median of 15.74% across 12 peers that have reported Q1FY27.
How the stock reacted
| Window | Stock | vs NIFTY |
|---|---|---|
| Results day | +2.22% | +2.65% |
Volume on the results session was 3.62× its 20-day average.
What management said
From the company’s own investor presentation. Each point is checked against the source document before it appears here.
This quarter
- Direct revenue grew 2.2% sequentially and 9.9% year over year in Q1FY27.
- APPS year-over-year growth was driven by AI-led modernization deals in Q1FY27.
Guidance & outlook
- Mphasis expects Q2FY27 to have accelerated momentum and the best sequential constant-currency growth in three years.
- Mphasis is maintaining its FY27 revenue and margin guidance.
- Mphasis targets high-single-digit to low-double-digit growth for FY27 despite the uncertain macro environment.
- Mphasis targets margins of 14.75%-15.75% and 80% conversion of net income to operating cash flow.
New orders
- Mphasis reported net-new TCV of $461 million for Q1FY27, including three large deals.
- Mphasis reported record pipeline growth of 8% sequentially and 28% year over year.
New initiatives
- Mphasis says its Opportunity Maximization approach is changing client conversations by addressing underlying business problems.
- Mphasis is building a deployment-ready AI stack and says agentic AI is not the target state.
- Mphasis says its enterprise agency approach is yielding good conversions.
- Mphasis reports early validation of its platform strategy, with multiple deals moving to execution within seven weeks of launch.
Problems & risks
- Mphasis identifies the uncertain macro environment as a challenge to delivering its targeted growth.
- Mphasis says it delivered margins within the stated band after absorbing acquisition costs.
What to watch
- Whether operating margin returns to or remains within management's 14.75%-15.75% target band.
- Whether the reported $461 million of net-new TCV converts into execution and supports the stated Q2FY27 momentum.
- Whether the pipeline sustains its 8% sequential growth while expenses grow no faster than revenue.