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Proven record of growing at par with biggies: Mphasis has been
an outperformer in the mid-cap IT space. The company's revenue
has been growing at a scorching pace, almost comparable to
tier-I IT companies (which grew by 6-11.5% qoq in 2QFY2011).
Mphasis benefits from its strong parentage (HP), which enabled
it to reach the billion-dollar revenue milestone in FY2010. Going
forward, we expect Mphasis to continue its volume-led growth
momentum, with a 19.4% CAGR over FY2010-12 in USD
revenue.
Price uncertainty behind: Mphasis has enjoyed superior volume
growth due to its MSA with HP, while facing the brunt of this
dependence in the form of rounds of price renegotiations. This
price uncertainty has been a major overhang. However, in
4QFY2010, Mphasis managed to garner better price points in
its anchor business (application services), which expanded to
US $72/hr from US $71/hr in 3QFY2010. Mphasis also
maintained price points across all other business segments.
We believe any further round of downward renegotiation is
unlikely, as most of its business from HP (go-to-market) will be
market driven.
Strong cash pile and free cash flows to aid growth via M&As:
Currently, Mphasis has a strong cash position of `1,638cr. The
company has also been generating strong cash flows of over
`150cr qoq due to better profitability compared to other mid
caps, which further enhances its capability to go in for strategic
buyouts. Management is scouting for acquiring companies with
US $50mn-100mn annual revenue run rate to further boost
growth. Thus, a healthy balance sheet position and strong free
cash flows will aid Mphasis in carrying out attractive buyouts,
thus enhancing its services and vertical portfolio. In 2QFY2010,
Mphasis acquired Fortify Infrastructure Services, which possesses
an outcome-based ITO platform. The acquisition has
strengthened Mphasis' capability in the US $4bn remote
infrastructure offshoring space.
Valuations attractive: At the CMP, the stock is trading inexpensive
at 11.2x FY2012E EPS of `57.7despite registering revenue growth
and profitability comparable to tier-I companies such as HCL
Tech. Hence, we recommend Buy on the stock with a Target
Price of `866, valuing it at 15x FY2012E EPS.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Proven record of growing at par with biggies: Mphasis has been
an outperformer in the mid-cap IT space. The company's revenue
has been growing at a scorching pace, almost comparable to
tier-I IT companies (which grew by 6-11.5% qoq in 2QFY2011).
Mphasis benefits from its strong parentage (HP), which enabled
it to reach the billion-dollar revenue milestone in FY2010. Going
forward, we expect Mphasis to continue its volume-led growth
momentum, with a 19.4% CAGR over FY2010-12 in USD
revenue.
Price uncertainty behind: Mphasis has enjoyed superior volume
growth due to its MSA with HP, while facing the brunt of this
dependence in the form of rounds of price renegotiations. This
price uncertainty has been a major overhang. However, in
4QFY2010, Mphasis managed to garner better price points in
its anchor business (application services), which expanded to
US $72/hr from US $71/hr in 3QFY2010. Mphasis also
maintained price points across all other business segments.
We believe any further round of downward renegotiation is
unlikely, as most of its business from HP (go-to-market) will be
market driven.
Strong cash pile and free cash flows to aid growth via M&As:
Currently, Mphasis has a strong cash position of `1,638cr. The
company has also been generating strong cash flows of over
`150cr qoq due to better profitability compared to other mid
caps, which further enhances its capability to go in for strategic
buyouts. Management is scouting for acquiring companies with
US $50mn-100mn annual revenue run rate to further boost
growth. Thus, a healthy balance sheet position and strong free
cash flows will aid Mphasis in carrying out attractive buyouts,
thus enhancing its services and vertical portfolio. In 2QFY2010,
Mphasis acquired Fortify Infrastructure Services, which possesses
an outcome-based ITO platform. The acquisition has
strengthened Mphasis' capability in the US $4bn remote
infrastructure offshoring space.
Valuations attractive: At the CMP, the stock is trading inexpensive
at 11.2x FY2012E EPS of `57.7despite registering revenue growth
and profitability comparable to tier-I companies such as HCL
Tech. Hence, we recommend Buy on the stock with a Target
Price of `866, valuing it at 15x FY2012E EPS.
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