Coforge, Mphasis defy seasonality, beat market expectations in Q3

Defying seasonal weaknesses, mid-sized information technology (IT) outsourcers Coforge Ltd and Mphasis Ltd beat analyst expectations for the October-December 2025 quarter, mirroring the trend of their mid-sized peers.

On Friday, seventh-largest Coforge ended the third quarter with $478.2 million in revenue, up 3.5% sequentially and 23% on a yearly basis. As much as 90% of this growth came from retailers and manufacturers.

Eighth-largest Mphasis racked up $451.2 million in revenue in the quarter, up 1.35% sequentially and up 7.66% year-on-year. About three-fourths of its growth came from banks.

Analysts polled by Bloomberg expected Coforge and Mphasis to end the third quarter with $470 million and $449 million in revenue, respectively.

The third quarter of a fiscal is considered seasonally weak because it has fewer billing days due to holidays.

Demand scenario

This performance comes at a time when the $283-billion IT sector battles macro uncertainty and tepid demand for IT services.

Unlike their peers, which were sanguine, both companies adopted differing stances on demand recovery. Mphasis’s management expected a prolonged recovery for IT services, whereas Coforge was optimistic of creating new demand.

“I’ve actually said that discretionary spend, as we knew it, is unlikely to come back in the same shape and form,” Nitin Rakesh, chief executive of Mphasis, said during the company’s post-earnings conference call on Thursday. He added that while it’s a bit early, “it is very apparent that spends are going to be stable to slightly up this year”.

However, one expert gave the company’s results a thumbs up.

“With client-specific challenges behind, improving correlation between TCV (total contract value) and revenue conversion, improved deal win momentum and management’s commentary of stable tech spends for CY26, we believe revenue growth momentum may continue to improve for Mphasis,” said ICICI Securities analysts Ruchi Mukhija, Aditi Patil, and Seema Nayak, in a note dated 23 January.

In contrast, Coforge’s management sounded more optimistic.

Sudhir Singh, chief executive officer (CEO) of Coforge, said the shifting tech services landscape is creating extraordinary opportunities for firms with the right capabilities.

“While two years ago, every Board was asking, how can we adopt AI? That question has now fundamentally changed,” Singh said during the company’s post-earnings analyst call on Friday. “Our customers are no longer interested in AI strategies or pilot programs. They are demanding proof of business impact.”

For now, the company has not factored in revenue from the $2.36 billion acquisition of Encora in December last year. The management expects the acquisition to be completed by April.

Singh’s commentary was similar to that of C. Vijayakumar, CEO of third-largest IT services company HCLTech. He said during the company's post-earnings analyst call on Monday that the company is looking to create new opportunities rather than waiting for a rebound in discretionary spending.

Both Coforge and Mphasis refrained from disclosing revenue from Gen AI and were also less cautious than their larger peers.

The top five are expected to grow in the low single digits for the third straight year, with the third-largest HCLTech, expected to grow the fastest. The company is expected to grow at best 4.5%, according to management commentary. None of the mid-cap IT outsourcing companies provides quarterly or full-year revenue guidance.

Concerns on profitability

Profits were a concern. Mphasis and Coforge’s net profit declined 5.7% and 33% on a sequential basis to ₹442 million and ₹250 crore, respectively.

Margins were also under pressure during the quarter. Coforge and Mphasis ended the third quarter with 13.4% and 15.2% in operating margins, down 60 basis points and 10 basis points on a quarterly basis, respectively. Much of the margin decline at Coforge was caused by wage hikes in the quarter.

Coforge and Mphasis incurred one-time costs amounting to ₹118 crore and ₹36 crore due to the new labour codes, which increase the base salary of employees and therefore translate to higher costs for IT outsourcers. Till now, LTIMindtree Ltd and Persistent Systems Ltd incurred costs amounting to Rs. 590 crore and ₹89 crore. This takes the tally of labour codes impact on IT outsourcers to $592 million.

In terms of headcount, Coforge and Mphasis added headcount by 445 employees and 463 employees to 35,341 and 31,272 people, respectively. This is in line with mid-sized peers as LTIMindtree and Persistent Systems added 1,511 and 487 employees, respectively, to end with 87,958 and 26,711 employees, respectively.