Anand Rathi's research report on Mphasis
In Q3, Mphasis undershot peers with its sequentially flattish IT services (82% of revenue). The weakness arose from furloughs and delayed rampups in deals won previously. It did well, however, in its key strengths such as TCV (net new $401m) and client mining (first client moving to the $200m bracket), keeping alive revenue-acceleration hopes. BPM (18% of revenue) reflected weakness in Mortgages (~50% of BPM) though industry volumes have started stabilising in the last 2 months. Margins are trending up; to retain pace as revenue growth returns and utilisation/offshore improve. The weak Q3 leads to our ~4% cut in estimates and 3% in the target.
Outlook
We cut estimates by ~4% and target by ~3% on delayed recovery in the core business. We expect Mphasis to start matching peers’ growth rates from Q1 FY24, and value it at 25x FY25e EPS (23x earlier), slightly below LTIM, on better portfolio mix resulting into lower volatility in performance. Our new TP is Rs.2,820 (Rs2,900 earlier).
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