Buy Mphasis; target of Rs 390: Dolat Capital

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Buy Mphasis; target of Rs 390: Dolat Capital

Dolat Capital is bullish on Mphasis and has recommended buy rating on the stock with a target of Rs 390 in its December 1, 2011 research report.

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Dolat Capital is bullish on Mphasis and has recommended buy rating on the stock with a target of Rs 390 in its December 1, 2011 research report.

"Mphasis declared its Q4FY11 results, with a revenue decline of 3.8% QoQ at USD 276mn - 4% below our estimates. Growth in rupee terms was 2% at ` 13.1bn. the growth was largely driven by momentum in the direct channel business growth and consolidation of Wyde financials for two months. Wyde contributed about ` 199mn for the two months of consolidation. Revenue from HP portfolio was down by 4.9% QoQ despite the strong growth in the non-enterprise portion that grew by 14.2% sequentially at Rs 580mn. The management expect revenue from the HP non-enterprise segment to clock USD 100mn mark in FY12 (FY11 - USD35mn). Its master service agreement will come for renewal in late FY12 and thus we don't expect any significant downtick in portfolio pricing. It added 25 new clients - 17 in the direct channels and is witnessing strong business traction in the Insurance and BCM segment."

"The company has about 1,300 open positions to be added in the App/ITO business segment. But the BPO segment may see some more rationalization in the quarter. Adjusted margin improved by 200bps during the quarter and the management expect to maintain the operating margins at about 15% in FY12. PAT declined 6% QoQ at ` 1.83bn due to higher effective tax rate of 24.1% as against 22% in the previous quarter. We have cut our FY12 EPS estimate by 9% in view of subdued outlook on HP's enterprise business and weak margin management. At CMP of ` 315, the stock is trading at an attractive valuation of 7x of its FY13 April earnings however the concern pertaining to business from HP and pricing/margin slippage would remain an overhang"

"We believe the results were disappointing as the company continues to report one time items quarter after quarter. Though the valuations are quite compelling at 7x 1-yr fwd but however the low offtake from HP and weak sentiment in parent's earning commentary remains an overhang. We maintain our Buy recommendation but with a cautious stance," says Dolat Capital research report. 

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To read the full report click on the attachment