Mphasis Q3FY26 net profit rises 3.5% — Should you buy, sell or hold?

IT services company Mphasis Ltd reported a steady set of numbers for the December quarter of FY26, with growth continuing to come from its core banking and financial services clients even as margins faced some pressure from one-off costs. The results were broadly in line with Street expectations and offered few surprises.

Shares of Mphasis traded lower after the results as investors weighed steady revenue growth against near-term margin pressures. The stock was down 1.9 per cent at Rs 2,756.40 on the NSE in afternoon trade.

Rise in revenue

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For the third quarter of FY26, Mphasis reported revenue of USD 451 million, marking a 1.5 per cent rise quarter-on-quarter and 7.4 per cent growth year-on-year in constant currency terms. Resilient demand from financial services clients helped offset weakness in more discretionary areas.

2.5 per cent sequential growth was recorded in the banking vertical, while Insurance performed slightly better with an 8.1 per cent increase, reflecting steady spending on digital modernisation, regulatory compliance and efficiency-driven technology projects. These segments have remained relatively stable for Mphasis at a time when global tech spending remains cautious.

Weakness in tech and media weighs

Not all business segments showed momentum. The Technology and Media vertical declined 2.3 per cent quarter-on-quarter, impacted by seasonal factors and softer discretionary spending — a trend visible across the IT services sector in recent quarters.

Margins dip on one-time costs

Margins softened marginally during the quarter. EBIT margin slipped 10 basis points sequentially to 15.2 per cent, largely due to a one-time charge of Rs 35.5 crore linked to the rollout of India’s new labour code. Excluding this exceptional cost, margins were broadly stable, analysts said. Earnings per share came in at Rs 23.1, up 2.3 per cent year-on-year.

Deal bookings decline sequentially, pipeline strengthens

Deal activity remained a key focus area. Mphasis reported deal bookings of USD 428 million during the quarter. While this was down 19 per cent sequentially due to a strong base in the previous quarter, bookings were still up 22 per cent year-on-year. The company also signed four large deals, improving revenue visibility for the coming quarters.

More importantly, the company’s deal pipeline expanded sharply, rising 91 per cent year-on-year. Around 69 per cent of the pipeline is now AI-led, indicating that client discussions are increasingly moving from pilot projects to larger, transformation-led programmes. Analysts noted that while deal ramp-ups could pressure margins in the near term, the expanding pipeline improves medium-term visibility.

Brokerage views: What should investors do?

Brokerage reactions reflected a balance between confidence in growth visibility and caution on margins. Nomura said the quarter was largely in line, with revenue marginally ahead of estimates and margins broadly as expected. The brokerage expects USD revenue growth of 7–10 per cent year-on-year over FY26–27, retained its Neutral rating and trimmed its target price to Rs 2,970, while maintaining a preference for peers such as Coforge.

UBS has reiterated its Buy rating, cutting its target price to Rs 3,520 adjusting in the near-term margin pressures. Global brokerage Jefferies has maintained a Buy call with a revised target of Rs 3,410, citing strong deal visibility and AI-led momentum. Morgan Stanley retained its Overweight rating but reduced its target price to Rs 3,410, pointing to continued investments in talent and capabilities as a short-term drag on margins.