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Mphasis (CMP: `413/ TP: `482/ Upside: 17%)
Mphasis is witnessing strong growth from non-HP channel business. The company's
ITO business is witnessing good growth, with open billable position increasing
from 471 to 600 in 2QFY2011. In fact, this business segment has grown at a
scorching pace of 10% CQGR over 1QFY2010-2QFY2011E and is expected to
continue as a growth driver for the company.
The company is looking at an inorganic strategy to supplement its growth further.
Recently, management acquired Wyde, an international software vendor and creator
of Wynsure – an insurance policy administration IP solution – to scale up its insurance
portfolio. This acquisition is expected to be EBITDA accretive, as Wyde enjoys EBITDA
margin of 18%, higher than the company's EBITDA margin.
Going forward, management expects the direct channel (33% to revenue) and HP
non-enterprise solution business (which is currently ~5% of revenue from HP channel)
to drive growth, whereas the HP-ES business is expected to remain sluggish.
We expect the company to record a revenue CAGR of 16.2% over FY2011E-13E.
We value the company at 45% discount to Infosys' target PE of 20x i.e.,11x `43.1
(FY2013 - March ending), which gives us a target price of `482 and recommend
a Buy rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mphasis (CMP: `413/ TP: `482/ Upside: 17%)
Mphasis is witnessing strong growth from non-HP channel business. The company's
ITO business is witnessing good growth, with open billable position increasing
from 471 to 600 in 2QFY2011. In fact, this business segment has grown at a
scorching pace of 10% CQGR over 1QFY2010-2QFY2011E and is expected to
continue as a growth driver for the company.
The company is looking at an inorganic strategy to supplement its growth further.
Recently, management acquired Wyde, an international software vendor and creator
of Wynsure – an insurance policy administration IP solution – to scale up its insurance
portfolio. This acquisition is expected to be EBITDA accretive, as Wyde enjoys EBITDA
margin of 18%, higher than the company's EBITDA margin.
Going forward, management expects the direct channel (33% to revenue) and HP
non-enterprise solution business (which is currently ~5% of revenue from HP channel)
to drive growth, whereas the HP-ES business is expected to remain sluggish.
We expect the company to record a revenue CAGR of 16.2% over FY2011E-13E.
We value the company at 45% discount to Infosys' target PE of 20x i.e.,11x `43.1
(FY2013 - March ending), which gives us a target price of `482 and recommend
a Buy rating on the stock.
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