Mphasis cash generation turns negative as DSO reaches 113 days

Mphasis reported negative US$60 lakh of cash generation in Q2FY27 as DSO reached 113 days from 95 days in Q1FY27; it said US$3.96 crore of remittances initiated on September 30 were received in October. After that timing adjustment, Mphasis showed US$3.4 crore of normalized cash generation and 105 days of normalized DSO.

Why did Mphasis report negative cash generation in Q2FY27?

Mphasis reported negative US$60 lakh of cash generation in Q2FY27 because remittances initiated at the September 30 quarter-end were received in October rather than within the reported quarter. The company identified US$3.96 crore of these remittances in its explanation of the movement, while the quarterly financial-metrics table shows a US$4 crore normalization. Applying the table normalization to the reported result gives normalized cash generation of US$3.4 crore.

The reported outcome changed materially from the two preceding periods. Mphasis reported cash generation of US$5.4 crore in Q2FY26 and US$3.9 crore in Q1FY27, before the negative US$60 lakh reported in Q2FY27. Reported quarterly cash generation therefore fell by US$4.5 crore sequentially, although the company’s adjusted Q2FY27 measure remained positive at US$3.4 crore.

Mphasis described US$3.4 crore as normalized cash generation after the remittance adjustment, rather than as a replacement for the reported result. The presentation displays both measures separately: negative US$60 lakh is the Q2FY27 reported figure, while US$3.4 crore reflects management’s adjustment for receipts that arrived after the September quarter closed.

How did Mphasis’s DSO reach 113 days in Q2FY27?

Mphasis’s days sales outstanding, or DSO, reached 113 days in Q2FY27, increasing by 18 days from 95 days in Q1FY27 and by 24 days from 89 days in Q2FY26. The company split the 113-day figure into 104 days of debtors and nine days of contract assets. Debtors therefore represented most of the reported DSO balance.

Debtor days increased to 104 in Q2FY27 from 91 in Q1FY27 and 82 in Q2FY26, a sequential rise of 13 days and a year-on-year increase of 22 days. Contract-asset days rose to nine from four in Q1FY27 and seven in Q2FY26, adding five days sequentially and two days year on year. Both components increased, but debtors accounted for the larger movement.

Mphasis calculated normalized DSO at 105 days after adjusting for US$3.95 crore of remittances initiated on September 30 and received in October. The normalized measure was eight days below reported DSO of 113 days, but it remained 10 days above Q1FY27’s reported 95 days. The presentation uses US$3.95 crore in the DSO explanation and US$3.96 crore in the cash-generation explanation.

Did Mphasis’s operating performance remain stable despite the cash movement?

Mphasis reported gross revenue of US$48.6 crore in Q2FY27, compared with US$47.1 crore in Q1FY27 and US$44.5 crore in Q2FY26. The presentation states that gross revenue grew 3.3% sequentially in constant currency, while direct revenue increased 3.5% quarter on quarter and 11.3% year on year in constant currency. Those revenue measures contrast with the decline in reported cash generation during the quarter.

Operating margin was 14.8% in Q2FY27, unchanged from Q1FY27’s 14.8% and below Q2FY26’s 15.3%. Earnings per share were Rs 29.4 in Q2FY27, against Rs 25.6 in Q1FY27 and Rs 24.7 in Q2FY26. Mphasis presented the sequential earnings-per-share increase as 14.6%, while reported cash generation moved from US$3.9 crore to negative US$60 lakh.

The Americas generated US$41.3 crore of Q2FY27 revenue, up from US$40.2 crore in Q1FY27 and US$37.2 crore in Q2FY26. By segment, application services, or APPS, generated US$36.8 crore and business-process outsourcing, or BPO, generated US$7.9 crore, while infrastructure technology outsourcing, or ITO, generated US$3.9 crore. Mphasis attributed APPS and BPO growth to AI-led modernization deals and new deal wins.

What is Mphasis targeting for cash conversion and FY27 execution?

Mphasis is targeting conversion of 80% of net income into operating cash flow, with management stating that the target would normalize in FY28. Its FY27 guidance calls for low-double-digit revenue growth and operating margin within a 14.75% to 15.75% target band. The cash-conversion objective provides a stated benchmark alongside the Q2FY27 remittance-timing adjustment.

Management said H1FY27 provided a foundation for FY27 growth and expected momentum to continue in H2FY27, supported by pipeline and total contract value, or TCV, execution. Mphasis reported Q2FY27 TCV wins of US$46.6 crore, including five large deals, and trailing-12-month TCV of US$180 crore. It also said 66% of quarterly TCV wins were AI-led.

Mphasis reported a 23% year-on-year increase in its pipeline, with 71% AI-led. Those measures concern potential revenue execution, while the Q2FY27 cash-flow presentation identifies remittances initiated on September 30 and received in October as a separate working-capital timing item. The next disclosed milestone for the cash objective is normalization of the 80% net-income-to-operating-cash-flow conversion target in FY28.

Conclusion

Mphasis’s Q2FY27 presentation shows a difference between operating growth and reported cash realization. Gross revenue increased to US$48.6 crore, operating margin held at 14.8% sequentially, and earnings per share rose to Rs 29.4, but reported cash generation was negative US$60 lakh and DSO rose to 113 days. Management’s adjustments put cash generation at US$3.4 crore and DSO at 105 days, leaving receivables timing central to the quarter’s working-capital picture.

The next point to watch is whether remittances received in October are reflected in cash conversion and receivables metrics in subsequent disclosures. Mphasis has set an 80% net-income-to-operating-cash-flow conversion target, normalized in FY28, while guiding for low-double-digit FY27 revenue growth and a 14.75% to 15.75% operating-margin range. Future quarters will show whether DSO, debtor days and reported cash generation move toward those stated objectives.