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¾ Jan’12 op performance met exp in INR terms (however aided
by lower hedging losses). Rev (ex hedges) declined by ~2%
QoQ impacted by ~7%seq decline in HP business
¾ HP (Non ES) declined by 15% QoQ to US$ 10.4 mn. Mgmt
scales down revenue outlook from the segment to US$ 75-80
mn (V/s US$ 100 mn earlier) , still a daunting ask in our view
¾ Challenges within HP expected to continue per mgmt while
Direct business (+6.3% QoQ) to grow decently. DSO flat QoQ
at 88 days
¾ Modest cuts to FYOct’12E EPS to Rs 35.6 as FYOct’13E
unchanged at Rs 37.6. Inline/weak results belie’ turnaround
in business’ thesis. REDUCE, TP Rs 340
In line results, profits miss on account of lower forex gains
Mphasis’s reported INR op performance was in line with estimates with revenues at
Rs 13.7 bn (+4.1% QoQ) albeit aided by lower than expected hedging losses at
~Rs 260 mn (Emkay est ~Rs 480 mn) with revenues(ex hedging) declining by ~2%
QoQ. Revenues from HP channel continued to decline sharply (-7.3% QoQ) while
Direct business continue to grow decently by ~6.3% sequentially (albeit aided by one
time license revenues of US$ 3.2 mn). While HP Enterprise Svcs declined as
expected, revenues from HP (Non ES) also declined by ~15% QoQ to US$ 10.5
mn. EBITDA margins improved by ~50 bps QoQ to 18.4% (V/s est of 18%) aided by
weak currency and headcount reduction (note that Mphasis has been reducing overall
HC for the 3rd quarter in a row while increasing utilization during the period). Profits at
Rs 1.85 n (+0.7% QoQ,-18.5% YoY) missed expectations (~Rs 2 bn) despite in line op
performance impacted adversely by lower translation gains. DSO remained flat
sequentially at 88 days with the Direct proportion of business increasing to 40% of
revenues V/s 38% in Oct’11 qtr.
Pressures at HP remain, HP (Non ES) revenue outlook scaled down
While Mphasis’s business from HP Enterprise Svcs segment continues to
remain under pressure for past several qtrs, management’s aggressive revenue
ramp up outlook from other segments within HP has been scaled down to
< US$80 mn (V/s US$ 100 mn earlier) which still remains a daunting ask per us.
Management continues to expect further pressures on the Enterprise Svcs side,
however expects pickup in the non ES side in the subsequent qtrs which should
aid meet the revised outlook.
Modest cuts to FYOct’12E earnings, maintain REDUCE, TP Rs 340
Further up move on Mphasis post a 35%+ movement in the past 3 months helped by
inexpensive valuations (read: 25% + of the market cap in cash. <9x 1 yr fwd P/E) in
our view required stability/improvement in business prospects at the HP level which
remains elusive in the Jan’12 results report. Jan’12 results report belie both
‘turnaround in business’ thesis as well as disappoint expectations on a likely
share buy back announcement. Retain REDUCE, TP Rs 340
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
¾ Jan’12 op performance met exp in INR terms (however aided
by lower hedging losses). Rev (ex hedges) declined by ~2%
QoQ impacted by ~7%seq decline in HP business
¾ HP (Non ES) declined by 15% QoQ to US$ 10.4 mn. Mgmt
scales down revenue outlook from the segment to US$ 75-80
mn (V/s US$ 100 mn earlier) , still a daunting ask in our view
¾ Challenges within HP expected to continue per mgmt while
Direct business (+6.3% QoQ) to grow decently. DSO flat QoQ
at 88 days
¾ Modest cuts to FYOct’12E EPS to Rs 35.6 as FYOct’13E
unchanged at Rs 37.6. Inline/weak results belie’ turnaround
in business’ thesis. REDUCE, TP Rs 340
In line results, profits miss on account of lower forex gains
Mphasis’s reported INR op performance was in line with estimates with revenues at
Rs 13.7 bn (+4.1% QoQ) albeit aided by lower than expected hedging losses at
~Rs 260 mn (Emkay est ~Rs 480 mn) with revenues(ex hedging) declining by ~2%
QoQ. Revenues from HP channel continued to decline sharply (-7.3% QoQ) while
Direct business continue to grow decently by ~6.3% sequentially (albeit aided by one
time license revenues of US$ 3.2 mn). While HP Enterprise Svcs declined as
expected, revenues from HP (Non ES) also declined by ~15% QoQ to US$ 10.5
mn. EBITDA margins improved by ~50 bps QoQ to 18.4% (V/s est of 18%) aided by
weak currency and headcount reduction (note that Mphasis has been reducing overall
HC for the 3rd quarter in a row while increasing utilization during the period). Profits at
Rs 1.85 n (+0.7% QoQ,-18.5% YoY) missed expectations (~Rs 2 bn) despite in line op
performance impacted adversely by lower translation gains. DSO remained flat
sequentially at 88 days with the Direct proportion of business increasing to 40% of
revenues V/s 38% in Oct’11 qtr.
Pressures at HP remain, HP (Non ES) revenue outlook scaled down
While Mphasis’s business from HP Enterprise Svcs segment continues to
remain under pressure for past several qtrs, management’s aggressive revenue
ramp up outlook from other segments within HP has been scaled down to
< US$80 mn (V/s US$ 100 mn earlier) which still remains a daunting ask per us.
Management continues to expect further pressures on the Enterprise Svcs side,
however expects pickup in the non ES side in the subsequent qtrs which should
aid meet the revised outlook.
Modest cuts to FYOct’12E earnings, maintain REDUCE, TP Rs 340
Further up move on Mphasis post a 35%+ movement in the past 3 months helped by
inexpensive valuations (read: 25% + of the market cap in cash. <9x 1 yr fwd P/E) in
our view required stability/improvement in business prospects at the HP level which
remains elusive in the Jan’12 results report. Jan’12 results report belie both
‘turnaround in business’ thesis as well as disappoint expectations on a likely
share buy back announcement. Retain REDUCE, TP Rs 340
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