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  • Stock recommendation: MphasiS — Sell — Target price Rs 825

    Publish date: August 9, 2018


    Results update: Valuations dim, direct core sheen

    MphasiS saw its revenue increase on the back of HP and Direct Core businesses, but its rich stock valuation keep us cautious.


    Key highlights

    • The revenues increased 1.7%, which is 1.9% below our estimate. But despite the revenue setback, the company’s EBIT was in good shape at 16.6%.
    • The HP/DXC channel — which comprises 27% of the company’s revenues — grew by 4.5%, with the management owing the increase to long-term client partnerships and healthy execution track record.
    • Direct Core business, which is about 55% of the company’s revenues, grew 4.2% as the Blackstone portfolio continues to deliver a consistent performance.
    • There has been a rationalization in the sales force. The headcount in the sales team has been reduced by 22% (YoY). The company is now placing its integrated sales team in the right focus areas.

    Valuation & outlook

    WThe management expects the business to register stronger growth in the next few quarters as they expect to bag new deals and generate higher earnings from HP and Blackstone portfolios. However, the company’s rich valuation of stock makes it doubtful that there will be any marginal upside from the revenue generation in the near term.

    In addition, a high concentration of clients and a weak legacy portfolio are two other reasons why we maintain a cautious stance.


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