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Buy Mphasis; target of Rs 3740: Anand Rathi

Anand Rathi is bullish on Mphasis has recommended buy rating on the stock with a target price of Rs 3740 in its research report dated September 23, 2021.

September 23, 2021 / 11:42 AM IST
HDFC Securities research report's outlook and valuations:  500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar."" title="HDFC Securities research report's outlook and valuations:  "The YTD EPS upgrades (consensus) have been led by mid-tiers such as Tata Elxis, Mindtree, Mastek, and Persistent Systems, ranging from 20-40 percent and, within tier 1, by Wipro (~15%). We expect the sector (coverage universe) to post 13 percent and 14.5 percent USD revenue/APAT CAGR over FY21-24E compared to 6.5/7.5 percent over the past five years. The mid-tier valuation premium relative to tier 1s may sustain, based on its relative outperformance (>500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar."" width="100%" height="auto" >

HDFC Securities research report's outlook and valuations:  "The YTD EPS upgrades (consensus) have been led by mid-tiers such as Tata Elxis, Mindtree, Mastek, and Persistent Systems, ranging from 20-40 percent and, within tier 1, by Wipro (~15%). We expect the sector (coverage universe) to post 13 percent and 14.5 percent USD revenue/APAT CAGR over FY21-24E compared to 6.5/7.5 percent over the past five years. The mid-tier valuation premium relative to tier 1s may sustain, based on its relative outperformance (>500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar."

 
 
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Anand Rathi's research report on Mphasis


Mphasis acquired Seattle-based Blink UX for $94m plus retention-payouts over the next two years. Founded in 2000, Blink is into customer research, user design and customer experience, essentially strengthening Mphasis’ value proposition in engineering/product design and in customer-facing industries such as BFSI. It brings a reputed set of clients (leaders across sectors) with whom it shares long-tenured relations. Margins take a hit over the next two years but expect stabilisation thereafter. No change in overall margin guidance band despite the acquisition. We maintain a Buy.



Outlook


The acquisition is consistent with both Mphasis’ strategy and size (Blink is <3% of revenue, profitable). Revised estimates reflect higher D&A, lower other income, and retention payouts. In exchange, new clients and new services open up for Mphasis, offering longer growth potential. Reflecting this, we raise our target to Rs3,740, at 45x FY23 (from 35x earlier).


For all recommendations report, click here


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first published: Sep 23, 2021 11:42 am

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