HDFC Securities' research report on Mphasis
We maintain BUY on Mphasis (MPHL), based on strong growth outlook in Direct International (85% of revenue) and despite the uncertainty around the diminishing DXC portfolio (13% of revenue). Key indicators for Direct International growth are (1) deal pipeline increase by 49% and 9MFY21 net new TCV growth of 68% YoY, (2) increase in large & integrated deal component and broad-based growth (T10 and >USD5mn accounts), (3) acceleration in sub-segments such as Europe geography and Direct-Hi-tech sub-vertical, and (4) recent wins expected to improve the growth prospects of Insurance vertical. Operating performance of MPHL remains consistent within its 15.5-16.5% EBIT band and presents an upward bias with levers such as offshore/utilisation.
MPHL’s valuation discount to mid-tier IT is expected to reduce, supported by an improving mix of high-growth Direct business, limiting the impact from DXC and on FCF yield >5%, ~30% RoIC, FY21-23E EPS CAGR at 16%. Our target price is Rs 1,740, valuing MPHL at 20x Dec-22E EPS.