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http://www.kotaksecurities.com/pdf/dmb/MorningInsight05032012.pdf
MPHASIS BFL LTD
PRICE: RS.392 RECOMMENDATION: REDUCE
TARGET PRICE: RS.379 FY12E P/E: 11X
A buyback at significantly higher price or de-listing, if any,
are the risks to our call
q Mphasis' 1QFY12 results were below expectations. USD revenues fell by
about 2% QoQ, (not considering the impact of hedging losses). The revenues also contained about 2% pass-through revenues. Thus, the actual
fall was about 4%, in our opinion. We find it disappointing despite there
being some impact of seasonal shutdowns in HP business. EBIDTA margins were higher by 60bps QoQ largely due to rupee depreciation and
better utilization of resources. Number of employees fell QoQ, which
also helped margins. Employee strength has fallen for the 3rd straight
quarter, likely reflecting the limited revenue visibility. Non-HP business
witnessed around 8% growth whereas, HP revenues fell further by about
4% during the quarter, according to the management.
q Off-shore applications realisations were up due to better efficiency. However, contract re-negotiations (due to currency) resulted in a fall in onsite realisations. The company has not ceded further to lower billing
rates from the Parent HP. Non-HP channel business added 17 clients in
1Q. Any slowdown in the Enterprise Solutions business may have a bearing on Mphasis' revenue growth in the next few quarters. The management expects the non-ES business from HP to compensate for this fall.
However, if this business does not flow in from developed economies, it
may be margin-dilutive.
q For FY12E, we expect earnings to come down on a YoY basis to Rs.35.4
per share, due to the uncertain macro and the uncertainties within HP.
FY11 also contained several reversals of provisions (nearly Rs.1.12bn) and
one-time revenues of Rs.665mn, which we do not expect to recur in
FY12. Our PT stands marginally changed to Rs.379 (Rs.370). Our DCF
based price target leads us to a target FY12E PE of 11x. The stock has run
up in the recent past and we downgrade the stock to REDUCE. A potential buy-back offer / de-listing from HP can provide upsides to the stock.
q Delayed recovery of developed economies and a sharper-than-expected
rupee appreciation are key downside risks to our estimates.
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/dmb/MorningInsight05032012.pdf
MPHASIS BFL LTD
PRICE: RS.392 RECOMMENDATION: REDUCE
TARGET PRICE: RS.379 FY12E P/E: 11X
A buyback at significantly higher price or de-listing, if any,
are the risks to our call
q Mphasis' 1QFY12 results were below expectations. USD revenues fell by
about 2% QoQ, (not considering the impact of hedging losses). The revenues also contained about 2% pass-through revenues. Thus, the actual
fall was about 4%, in our opinion. We find it disappointing despite there
being some impact of seasonal shutdowns in HP business. EBIDTA margins were higher by 60bps QoQ largely due to rupee depreciation and
better utilization of resources. Number of employees fell QoQ, which
also helped margins. Employee strength has fallen for the 3rd straight
quarter, likely reflecting the limited revenue visibility. Non-HP business
witnessed around 8% growth whereas, HP revenues fell further by about
4% during the quarter, according to the management.
q Off-shore applications realisations were up due to better efficiency. However, contract re-negotiations (due to currency) resulted in a fall in onsite realisations. The company has not ceded further to lower billing
rates from the Parent HP. Non-HP channel business added 17 clients in
1Q. Any slowdown in the Enterprise Solutions business may have a bearing on Mphasis' revenue growth in the next few quarters. The management expects the non-ES business from HP to compensate for this fall.
However, if this business does not flow in from developed economies, it
may be margin-dilutive.
q For FY12E, we expect earnings to come down on a YoY basis to Rs.35.4
per share, due to the uncertain macro and the uncertainties within HP.
FY11 also contained several reversals of provisions (nearly Rs.1.12bn) and
one-time revenues of Rs.665mn, which we do not expect to recur in
FY12. Our PT stands marginally changed to Rs.379 (Rs.370). Our DCF
based price target leads us to a target FY12E PE of 11x. The stock has run
up in the recent past and we downgrade the stock to REDUCE. A potential buy-back offer / de-listing from HP can provide upsides to the stock.
q Delayed recovery of developed economies and a sharper-than-expected
rupee appreciation are key downside risks to our estimates.
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