Motilal Oswal's research report on Mphasis
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.
Outlook
We 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.
For all recommendations report, click here
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.