Mphasis Shares Slip 4.6% Despite Q2 Profit Growth as Margins Decline

Mphasis announced its Q2 results for fiscal year 2026, showing a year-on-year net profit increase of 10.8% to ₹4,691 million, and a sequential growth of 6.2%. Gross revenue also saw a year-on-year increase of 11.4% and a sequential increase of 5.3%. Profit before tax rose by 2.41% to ₹624.78 crore. Net profit margins improved by 20 basis points quarter-on-quarter, remaining flat year-on-year at 12.0%. However, gross profit margins declined both year-on-year and quarter-on-quarter, falling by 80 basis points to 28.1%. The company secured new Total Contract Value (TCV) wins totaling $528 million, with 87% in new-generation services.

Despite these positive top-line and bottom-line figures, Mphasis's stock price dropped by 4.6% to an intraday low of ₹2,752. This reaction is attributed to concerns over the declining gross margins and a significant drop in revenue concentration from its top five clients, which fell from 43% in Q2 FY25 to 39% in Q2 FY26. Cash and cash equivalents decreased by ₹8,568 million during the quarter, and billing days increased by 5 days. The IT sector, including Mphasis, has also faced pressure due to US tariffs and increased H1B visa fees, contributing to the Nifty IT index trading flat since April.

Impact: This news directly affects Mphasis's market valuation and investor sentiment. The decline in margins and client concentration issues raise concerns about future profitability and growth sustainability, which could impact other Indian IT companies facing similar challenges. Rating: 7/10

Difficult Terms: Net Profit: The profit a company makes after deducting all expenses and taxes. Gross Revenue: The total income generated from sales of goods or services before any deductions. Year-on-Year (YoY): A comparison of financial data over a period of one year compared to the same period in the previous year. Sequentially (QoQ): A comparison of financial data from one quarter to the previous quarter. Profit Before Tax (PBT): The profit of a company before the deduction of income tax. Net Margins: The percentage of revenue that remains as profit after all expenses, interest, and taxes have been deducted. Gross Profit Margins: The percentage of revenue remaining after deducting the cost of goods sold. Basis Points (bps): A unit of measure equal to 1/100th of 1%. 100 bps = 1%. Total Contract Value (TCV): The total value of a contract over its entire term, including recurring revenue and one-time fees. Constant Currency: A method of financial reporting that removes the effects of foreign exchange rate fluctuations to show the underlying business performance. Cash and Cash Equivalents: Highly liquid short-term investments that can be readily converted into cash. Billing Days: The average number of days it takes for a company to receive payment after issuing an invoice.