Mphasis Ltd Challenges persist REDUCE :Emkay

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Mphasis Ltd

Challenges persist

REDUCE

CMP: Rs326                                        Target Price: Rs325

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We hosted Mr Ganesh Murthy, CFO, Mphasis for investor meetings in Mumbai recently. We present key takeaways:

n     Challenges within core HP Enterprise Svcs continue, co expects increased traction in HP Technology Svcs and HP Imaging and Printing Group

n     Direct channel revenue growth to remain strong. Recent deal wins in domestic business lend visibility

n     Co targeting EBIT margins of 15-18% in FYOct’12. Lower investments in Javelina, absence of RSU charge, fresher hiring and consolidation of facilities to drive margins up 

n     Inexpensive valuations at ~9x FYOct’11/Oct’12E EPS with cash at ~26% of mktcap limits downsides. Improvement in op performance needs to preclude stock upsides