Accumulate Mphasis; target of Rs 420: Angel Broking

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Accumulate Mphasis; target of Rs 420: Angel Broking

Angel Broking is bullish on Mphasis and has recommended accumulate rating on the stock with a target of Rs 420 in its August 24, 2011 research report.

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Angel Broking is bullish on Mphasis and has recommended accumulate rating on the stock with a target of Rs 420 in its August 24, 2011 research report.

"Mphasis reported dismal set of 3QFY2011 results with volume growth of 3.0% qoq - out of which only 1.3% is from normal operations, the rest 1.7% is derived due to several one-off items booked in revenue. At the CMP, the stock is trading at 10.9x FY2013E EPS of Rs 36.4 with a strong cash position of Rs 2,029cr, which warrants limited downside. Mphasis reported revenue of US$290mn, up merely 2.9% qoq. In rupee terms also revenue growth was 2.9% qoq with revenues at Rs 1,294cr. These revenues include one-time revenues of Rs 66.5cr. Also, Rs 34.6cr of revenues were not booked in this quarter due to incomplete documentation. Adjusting for all this, revenues came in at Rs 1,262cr, up merely 1.2% qoq. Mphasis reported 31bp qoq expansion in its EBITDA margin to 19.4%. However, the company did provision reversal of Rs 11.0cr in employee costs and Rs 15.6cr in S&M expenses. Adjusting for these reversals and one offs in revenues, EBITDA margin came in at 15.3% vs. 16.3% in 2QFY2011."

"The open billable positions in the application business declined from 1,000 to 825. However for the ITO business, it remained flat at 600. This highlights that growth in ITO remains intact and would continue to be the possible growth driver for the company. Going forward, management expects the direct channel (33% to revenue) and HP non-enterprise solution business (which is currently ~5% of revenue from HP channel) to drive growth, whereas the HP-ES business is expected to remain sluggish. We expect revenue growth will be muted at 2.7% yoy for FY2011E considering that in 1QFY2011 revenue run rate fell by 10% qoq as well as company's revenue for 2QFY2011 and 3QFY2011 were driven by one-offs. However, the above-mentioned growth drivers are expected to result in the company's revenue to record a 10% CAGR over FY2011-13E. We recommend Accumulate rating on the stock with a target price of Rs 420, valuing it at 11.5x FY2013E EPS," says Angel Broking research report.

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To read the full report click on the attachment