Coforge, Mphasis defy seasonality, beat market expectations in Q3

Mid-sized information technology (IT) outsourcing providers Coforge Ltd and Mphasis Ltd defied seasonal weaknesses, beating analyst expectations for the October-December 2025 quarter, mirroring the trend of their mid-sized peers.

Coforge, the seventh largest, on Friday finished the third quarter with revenue of $478.2 million, up 3.5% sequentially and 23% year over year. About 90% of this growth came from retailers and manufacturers.

Mphasis, the eighth largest, had revenue of $451.2 million in the quarter, up 1.35% sequentially and 7.66% year over year. Nearly three-quarters of the growth came from banks.

Analysts participating in the Bloomberg survey are expected Coforge and Mphasis will close the third quarter with revenues of $470 million and $449 million, respectively.

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

Demand scenario

This performance, 283 billion dollars The IT industry is struggling with macro uncertainty and weak demand for IT services.

Unlike their optimistic counterparts, both companies have adopted different stances on demand recovery. While Mphasis’ management expected a long-term improvement in IT services, Coforge was optimistic that it would create new demand.

“I actually said that discretionary spending as we know it is unlikely to return in the same shape and form,” Nitin Rakesh, Mphasis’ chief executive, said on the company’s post-earnings conference call on Thursday. He added that although it was a bit early, it was “very clear that spending will remain stable this year with a slight increase”.

However, one expert responded positively to the company’s results.

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“With client-specific challenges behind it, improving correlation between TCV (total contract value) and revenue conversion, improvement in deal winning momentum and management’s comments on stable technology spend for CY26, we believe revenue growth momentum for Mphasis may continue to improve,” ICICI Securities analysts Ruchi Mukhija, Aditi Patil and Seema Nayak said in a Jan. 23 note. he said.

In contrast, Coforge’s management seemed more optimistic.

Coforge chief executive officer (CEO) Sudhir Singh said the changing technology services landscape is creating extraordinary opportunities for companies with the right talent.

“Two years ago every Board of Directors 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 clients are no longer interested in AI strategies or pilot programs. They demand proof of business impact.”

The company has not yet taken into account the proceeds from its $2.36 billion acquisition of Encora in December last year. Management expects the acquisition to be completed by April.

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

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

The top five are expected to grow by low single digits for the third year in a row, while the third-largest, HCLTech, is expected to grow the fastest. According to management comments, the company is expected to grow by 4.5% at best. None of the mid-sized IT outsourcing companies provide quarterly or full-year revenue forecasts.

Concerns about profitability

Profit was a concern. Mphasis and Coforge’s net profit fell by 5.7% and 33% respectively. ₹442 million and ₹250 crore respectively.

Margins were also under pressure during the quarter. Coforge and Mphasis finished the third quarter with operating margins of 13.4% and 15.2%, down 60 basis points and 10 basis points, respectively, quarter on quarter. The majority of the margin decline at Coforge was due to fee increases in the quarter.

Coforge and Mphasis incurred one-time costs: ₹118 crore and ₹36 crore due to new labor laws that increased the base salary of employees and hence translated into higher costs for IT outsourcing providers. So far LTIMindtree Ltd and Persistent Systems Ltd have incurred costs of Rs. 590 crore and ₹89 crore. This brings the tally of the impact of labor laws on IT outsourcing providers to $592 million.

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