Buy Mphasis; target of Rs 2450: HDFC Securities

HDFC Securities' research report on Mphasis

Mphasis (MPHL) delivered weak Q3 performance, impacted by the steeperthan-expected decline in Digital Risk (mortgage business) and a higher furlough impact in TMT vertical. The decline in Digital Risk (DR) impacted a sequential revenue drop of ~USD 12mn (FY23E revenue negative impact of USD 59mn or ~3.7% due to DR). We have factored in a double-digit decline in the next two quarters and a flat sequential trajectory beyond that which is in sync with Freddie Mac's quarterly outlook. Key positives for MPHL include (1) strong net-new deal bookings (second highest ever quarterly bookings) at USD 401mn TCV in Direct International business; (2) positive commentary on deal pipeline (up 27% YoY) and a strong outlook for BFSI (~56% of the pipeline); (3) lower incremental impact from DR on the overall business ahead (DR at 9.4% of Q3 revenue and estimated at ~6.5% of revenue for FY24/25E). Valuation is attractive at 21x FY24E and implies a modest growth ask rate in the medium term.

Outlook

Maintain BUY on MPHL, with a TP of INR 2,450 at 23x Sep-24E EPS, based on 13% EPS CAGR over FY22-25E. The near-term performance may remain muted due to the continuity of mortgage business impact and some delay in pipeline conversion.

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Mphasis - 21 -01-2023 - hdfc