Mphasis Ltd Q3 FY23 Earnings Conference Call Insights

Key highlights from Mphasis Ltd (MPHASIS) Q3 FY23 Earnings Concall

Q&A Highlights:

• [00:16:14] Mukul Garg from Motilal Oswal asked about the visibility of mortgage business in the near term. Nitin Rakesh MD said there are three main buckets of services in mortgage business; originations, home equity line, and servicing. In the short to medium term, MPHASIS believes there will be some unlocking of the market leading to opportunities.

• [00:20:45] Mukul Garg of Motilal Oswal enquired about TCV number continuing to increase, if longer duration deals are more part of TCV. Nitin Rakesh MD replied it’s unusual to see large banks doing very long term tenure deals, however there are some that extend into multiple years. The current quarter has a good mix of long and short term deals. Collection is still strong, which gives good visibility into the next four quarters.

• [00:22:41] Kawaljeet Saluja from Kotak queried about the reason for MPHASIS performance being muted for last quarter. Nitin Rakesh MD replied that MPHASIS have seen a decline in the mortgage segment in 3Q and weakness in some other pockets such as furloughs and larger clients going through short-term cost takeout opportunities.

• [00:27:43] Kawaljeet Saluja at Kotak asked when one will see margin improvement from 15.3%. Manish Dugar CFO answered that in 3Q23 there was improvement in utilization, the highest ever fresher mix billability, and increased offshore mix. Going forward, utilization should improve further with the fresher engine kicking in, leading to expanded margins.

• [00:31:43] Abhishek Bhandari from Nomura enquired about employee count, hiring outlook and reduction in headcount in 3Q. Nitin Rakesh MD replied the reduction is in line with optimization goals. The main metric to focus on is fresher adoption, in absolute and percentage terms. Hiring plans will be optimized based on demand forecasts. However, no number can be given.

• [00:42:05] Nitin Padmanabhan from Investec enquired if MPHASIS believes there is risk in home equity that could see another bout of headwinds for overall revenue. Nitin Rakesh MD said there is residual risk in the home equity business in the short run. This is because many homeowners may find it difficult to get home equity loans at such high rates. MPHASIS is monitoring this on a daily basis and anticipate that activity levels will start to pick up in the near future.

• [00:42:33] Nitin Padmanabhan from Investec asked if MPHASIS is happy with client additions. Nitin Rakesh MD replied that MPHASIS believes it has focused on a strategic hunting mindset where it’s trying to bring in some marquee logos. The pipeline grew 27% YoY, while the non-BFSI segment, which largely represents new accounts added by the NCA channel, grew 86%. This suggests that not only are more customers being added, but those scaling are doing well.

• [00:56:14] Abhinav Ganeshan from SBI Pension asked about the aspirational utilization level over the medium term. Nitin Rakesh MD said it believes there is potential for an increase in utilization of 3-4% in the short term, depending on the demand outlook, skill set match and internal training.

• [00:59:10] Ruchi Burde Mukhija with Elara asked if MPHASIS is seeing 4Q as a growth quarter. Manish Dugar CFO said the lead indicators for growth, such as TCV and the pipeline, are positive and have grown since 3Q. This adds to the confidence in MPHASIS’ growth, even with the uncertainty that exists around the mortgage business. Q4 should look better than Q3.

• [01:00:22] Ashwin Mehta from Ambit Capital asked about consolidation going forward and when the revenue impact will be seen. Nitin Rakesh MD replied MPHASIS is seeing consolidation deals in the pipeline, mainly with larger accounts. The company has seen a large TCV deal with a healthcare customer in Q3 and is also seeing opportunities open up as legacy providers move away from their customers and new partners look for providers like MPHASIS.