MPHL’s 4QFY23 performance was weaker than our expectations on account of a continued decline in its mortgage business (DR, down 23% QoQ). Again, other parts of the business were weak, with the DXC vertical down 24.8% QoQ CC and Direct revenue down 3.4% QoQ CC. As a result, overall USD revenue fell 4.5% QoQ CC. The deal TCV moderated, with net new TCV of USD309m (-11% YoY) v/s a record-high TCV of USD401m in 3Q. While the decline in DR (6.8% of revenue) was steeper than our estimate, the key surprise was the decline in Direct revenue excluding DR (down 1.1% QoQ), hit by delays in project ramp-ups across verticals. Management has indicated that the overall business is likely to remain muted in 1QFY24 as well and should start recovering from 2Q onward. With limited visibility in a turnaround in the US interest rate cycle (key factor for a recovery in DR), we remain cautious on FY24 revenue growth and factor in flat YoY USD CC revenue growth, the weakest in our IT services coverage.
OutlookWe lower our FY24-25 EPS estimates by 6-10% on account of a weak 4Q performance and FY24 outlook. The absence of topline growth remains a key overhang on the stock price. We believe that the current valuation of 16.3x FY25E EPS fairly factors in near-term earnings growth. Our TP of INR1,780 implies 16x FY25E EPS.
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