Forwarding you the Multiple Scrip’s Result Updates. Kindly click on the links to view the report.
Showing posts with label MphasiS. Show all posts
Showing posts with label MphasiS. Show all posts
04 June 2013
01 September 2012
MphasiS --HP continues to haunt, outlook hazy: Sunidhi
MphasiS’ US$ revenues have been declining for the last four quarters – primarily due to weak HP contribution. Management indicated discretionary budgets for clients remain under pressure, with longer decision cycles. We believe weak sentiment due to a declining headcount (4 quarters in Applications and ITO business) and a weak outlook on HP’s enterprise services business is likely to persist for some time. HP channel revenues declined 10.1% QoQ to US$138.6 mn, while direct channel revenues grew at 1.6% to US$113.4 mn.
25 March 2012
MphasiS -Muted HP channel puts pressure on growth ::PINC
Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Muted HP channel puts pressure on growth
HP channel led to revenue decline - Revenue declined 3%QoQ to
USD265.6mn, below expectation. Rupee revenue grew 4.1%QoQ to
Rs13,672mn. HP channel revenue remained flattish in rupee terms
with 58% contribution but direct channel revenue grew 14.4%QoQ
with 42% contribution, up from 31% contribution from a year back.
EBITDA margin expanded 57bpsQoQ to 18.4%, below our expectation.
PAT was Rs1,848mn, 1%QoQ growth. EPS was Rs8.8, 1%QoQ growth.
Onsite pricing for Applications declines, stable for other towers –
Onsite pricing for applications segment declined 2.9%QoQ to
USD67/hr. All other pricing including offshore and onsite for
Applications, ITO and BPO remained stable. The management
expects no pressure from HP in terms of price negotiation. Overall
pricing is also expected to be stable.
US and Europe decline - In dollar terms, America (65% contribution)
declined 4.5%QoQ, Europe (15% contribution) declined 9.1%QoQ and
Emerging Markets (20% contribution) grew 7.7%QoQ.
All service lines decline except IMS - In rupee terms, Application
maintenance (32% contribution) grew 1.8%QoQ, application
development (28% contribution) grew 4.6%QoQ, IMS (24%
contribution) grew 11.9%. Technical help desk (5% contribution)
declined 16%QoQ and customer service (5% contribution) declined
3.3%QoQ.
Employee headcount declines; robust new client addition – Total
headcount declined 4%QoQ to 38,798. Utilisation (including trainees)
for Application, BPO and ITO grew 100bpsQoQ each to 77%, 71% and
81% respectively. Added 28 new clients (17 from direct channel and
11 from HP channel). Top client declined 3%QoQ, top 10 clients
declined 3%QoQ.
Outlook and Recommendation – Q1FY12 financials are below
expectations with higher than expected decline from HP. As HP is
not performing well in its Enterprise Solutions segment, we expect
pressure on revenue growth in MphasiS as well with a risk of pricing
cut in future. The stock was at attractive valuations after the last
quarter’s earnings and it has given 37% absolute returns. We
downgrade the recommendation from BUY to ‘REDUCE’ with a target
price of Rs400 based on 10x PER multiple on 18-months forward
earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Muted HP channel puts pressure on growth
HP channel led to revenue decline - Revenue declined 3%QoQ to
USD265.6mn, below expectation. Rupee revenue grew 4.1%QoQ to
Rs13,672mn. HP channel revenue remained flattish in rupee terms
with 58% contribution but direct channel revenue grew 14.4%QoQ
with 42% contribution, up from 31% contribution from a year back.
EBITDA margin expanded 57bpsQoQ to 18.4%, below our expectation.
PAT was Rs1,848mn, 1%QoQ growth. EPS was Rs8.8, 1%QoQ growth.
Onsite pricing for Applications declines, stable for other towers –
Onsite pricing for applications segment declined 2.9%QoQ to
USD67/hr. All other pricing including offshore and onsite for
Applications, ITO and BPO remained stable. The management
expects no pressure from HP in terms of price negotiation. Overall
pricing is also expected to be stable.
US and Europe decline - In dollar terms, America (65% contribution)
declined 4.5%QoQ, Europe (15% contribution) declined 9.1%QoQ and
Emerging Markets (20% contribution) grew 7.7%QoQ.
All service lines decline except IMS - In rupee terms, Application
maintenance (32% contribution) grew 1.8%QoQ, application
development (28% contribution) grew 4.6%QoQ, IMS (24%
contribution) grew 11.9%. Technical help desk (5% contribution)
declined 16%QoQ and customer service (5% contribution) declined
3.3%QoQ.
Employee headcount declines; robust new client addition – Total
headcount declined 4%QoQ to 38,798. Utilisation (including trainees)
for Application, BPO and ITO grew 100bpsQoQ each to 77%, 71% and
81% respectively. Added 28 new clients (17 from direct channel and
11 from HP channel). Top client declined 3%QoQ, top 10 clients
declined 3%QoQ.
Outlook and Recommendation – Q1FY12 financials are below
expectations with higher than expected decline from HP. As HP is
not performing well in its Enterprise Solutions segment, we expect
pressure on revenue growth in MphasiS as well with a risk of pricing
cut in future. The stock was at attractive valuations after the last
quarter’s earnings and it has given 37% absolute returns. We
downgrade the recommendation from BUY to ‘REDUCE’ with a target
price of Rs400 based on 10x PER multiple on 18-months forward
earnings.
13 March 2012
Mphasis: Q1FY12 Results - Key Highlights :Aditya Birla Money
Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mphasis posted a topline growth of 4.1% to ` 13.67 bn from ` 13.13 bn on sequential basis and an increase of 10.8% from ` 12.33 bn on YoY basis
on account of the rupee depreciation of 7.3%. In dollar terms, revenue declined by ~3%. Strong Direct Channel (DC) growth (14.4% QoQ) helped
them to change the composition (HP:DC) significantly to 58:42 in Q112 vs 62:38 in Q411. On industry basis, the strong growth was led by insurance
(7.4%) & Information Technology, Communication & Entertainment (ITCE 8.3%) and Banking & Capital Market (BCM 4.5%). On service wise,
Infrastructure management services (IMS) grew by 8.7%, owing to strong demand seen in DC side of IMS. On geographical mix, Asia Pacific and
Japan (APJ) increased by 15.6% on QoQ basis.
EBITDA improved by 7.4% to `2.52 bn from `2.35 bn on QoQ basis. Notably, the margin bunked the declined trend with an improvement of 57 bps
to 18.5% from 17.9%.
PAT remained flat with a slight positive bias of 1.1% to `1.85 bn from ` 1.83 bn (QoQ).
Direct Channel and HP Channel: Direct Channel continued its strong momentum by growing 14.4% on QoQ, taking the current revenue
proposition to 42% vs 38% in Q4FY11 and 32% in Q1FY11. In particular, DC’s emerging market jumped by 27.2% and DC’s mature market
p p p g g j p y
increased by 11.2% on QoQ basis. During the quarter, Mphasis added 28 new clients, in that 17 clients in DC and rest 11 in HP Channel. Since
Q1FY11 (strategic changes), Mphasis added 128 clients, in that 82 clients in DC channel and rest 46 clients in HP Channel. HP remained sluggish
(-4% growth in $ terms QoQ) due to HP annual shutdown and certain project related impact. The management trimmed its Non-ES guidance to
$75-80 mn vs $100 mn for FY12E.
Operating Metrics – In application business, Mphasis gained 5% in offshore pricing on QoQ ($21 vs $20), on account of optimal deployment of
resources leading to efficient project execution Whereas they lost 3% in onsite pricing to $67 vs $69 in Q411 on account of current fluctuation
execution. ~Q411, adjustments. Even though, the management attributed no pricing discussions with HP in this quarter, but hinted that if anything, it would be inline
with industry standard. On headcount basis, Mphasis has witnessed a decline for the third consecutive quarter to 38798 in Q112 vs 41739 in Q211.
We believe there is little room for further margin improvement on utilisation front (ITO: 81% in Q112 vs 73% in Q211; App: 77% in Q112). However,
management is quite confident of maintaining the EBITDA margin in the 18-21% range.
Outlook & Valuation: The management’s strategy of transforming the company into more direct business-oriented has started to show positive
results, which is a good sign for Mphasis from medium to long-term perspective. We trimmed our earnings modestly by 1.5% and 3% for FY12E and
FY13E to factor in the slightly below results. On the back of the attractive valuation during Q411, sizeable cash on the BS, market expectations of buyback
& improving DC sentiments made the stock rally ~35% in YTD. However, overhang on HP business and increasing risk of price cuts from HP
would keep the upside capped. Currently, Mphasis trades at a consolidated P/E of 10.9x and 9.2x on its FY12E and FY13E earnings of `37.2 and `43.9
respectively. We think that it might take couple of quarters of stable performance to restore investor’s confidence in the management and growth
prospects. We continue to value Mphasis at 9x on its FY13E to arrive at a price target of Rs.395.2 and maintain our Neutral rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mphasis posted a topline growth of 4.1% to ` 13.67 bn from ` 13.13 bn on sequential basis and an increase of 10.8% from ` 12.33 bn on YoY basis
on account of the rupee depreciation of 7.3%. In dollar terms, revenue declined by ~3%. Strong Direct Channel (DC) growth (14.4% QoQ) helped
them to change the composition (HP:DC) significantly to 58:42 in Q112 vs 62:38 in Q411. On industry basis, the strong growth was led by insurance
(7.4%) & Information Technology, Communication & Entertainment (ITCE 8.3%) and Banking & Capital Market (BCM 4.5%). On service wise,
Infrastructure management services (IMS) grew by 8.7%, owing to strong demand seen in DC side of IMS. On geographical mix, Asia Pacific and
Japan (APJ) increased by 15.6% on QoQ basis.
EBITDA improved by 7.4% to `2.52 bn from `2.35 bn on QoQ basis. Notably, the margin bunked the declined trend with an improvement of 57 bps
to 18.5% from 17.9%.
PAT remained flat with a slight positive bias of 1.1% to `1.85 bn from ` 1.83 bn (QoQ).
Direct Channel and HP Channel: Direct Channel continued its strong momentum by growing 14.4% on QoQ, taking the current revenue
proposition to 42% vs 38% in Q4FY11 and 32% in Q1FY11. In particular, DC’s emerging market jumped by 27.2% and DC’s mature market
p p p g g j p y
increased by 11.2% on QoQ basis. During the quarter, Mphasis added 28 new clients, in that 17 clients in DC and rest 11 in HP Channel. Since
Q1FY11 (strategic changes), Mphasis added 128 clients, in that 82 clients in DC channel and rest 46 clients in HP Channel. HP remained sluggish
(-4% growth in $ terms QoQ) due to HP annual shutdown and certain project related impact. The management trimmed its Non-ES guidance to
$75-80 mn vs $100 mn for FY12E.
Operating Metrics – In application business, Mphasis gained 5% in offshore pricing on QoQ ($21 vs $20), on account of optimal deployment of
resources leading to efficient project execution Whereas they lost 3% in onsite pricing to $67 vs $69 in Q411 on account of current fluctuation
execution. ~Q411, adjustments. Even though, the management attributed no pricing discussions with HP in this quarter, but hinted that if anything, it would be inline
with industry standard. On headcount basis, Mphasis has witnessed a decline for the third consecutive quarter to 38798 in Q112 vs 41739 in Q211.
We believe there is little room for further margin improvement on utilisation front (ITO: 81% in Q112 vs 73% in Q211; App: 77% in Q112). However,
management is quite confident of maintaining the EBITDA margin in the 18-21% range.
Outlook & Valuation: The management’s strategy of transforming the company into more direct business-oriented has started to show positive
results, which is a good sign for Mphasis from medium to long-term perspective. We trimmed our earnings modestly by 1.5% and 3% for FY12E and
FY13E to factor in the slightly below results. On the back of the attractive valuation during Q411, sizeable cash on the BS, market expectations of buyback
& improving DC sentiments made the stock rally ~35% in YTD. However, overhang on HP business and increasing risk of price cuts from HP
would keep the upside capped. Currently, Mphasis trades at a consolidated P/E of 10.9x and 9.2x on its FY12E and FY13E earnings of `37.2 and `43.9
respectively. We think that it might take couple of quarters of stable performance to restore investor’s confidence in the management and growth
prospects. We continue to value Mphasis at 9x on its FY13E to arrive at a price target of Rs.395.2 and maintain our Neutral rating.
11 March 2012
MPHASIS Too much too soon ::Edelweiss
Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mphasis’ Q1FY13 numbers fell short of expectations. While revenue
declined 3% QoQ at USD266mn, net profit came in flat QoQ at INR1.84bn.
HP revenue channel continues to trend down (4% QoQ decline), but
direct business growth posted healthy traction (9% QoQ). Operating
margin (EBITDA) continued to inch up with 60bps improvement to 18.5%,
in line with expectation. We note that due to cash flow hedge accounting,
the company does not benefit from weaker rupee in the same quarter.
While the weak result does not impact our earnings estimate, the strong
stock performance over the past three months (up 40%) post our upgrade
to ‘BUY’ does not leave any upside. Hence, we downgrade our
recommendation to ‘HOLD’ with target price of INR390.
HP ES business decline impact to be limited
Mphasis has gained traction in HP non‐ES businesses—printing and imaging, R&D,
technology consulting (SI)—leading to stronger order book. While in Q1FY13, revenue
from this segment was impacted due to delays, for the full year it is expected to
contribute USD75mn‐80mn. Further, significant sales efforts to grow direct business
are already seeing healthy trend with the past two quarters’ CQGR close to 10%. We
expect this to offset the weakness in the HP ES segment (we have factored 10% decline
in FY13) that continues to be impacted due to market share loss by parent HP.
Margin turnaround expected to sustain
The company’s operating margins have improved 310bps to 18.5% over the past two
quarters. This was led by cost and efficiency related initiatives, which will continue. We
further note that Mphasis will benefit from the weak rupee with a lag and hence we
expect EBITDA margin to sustain over 18.5% going forward.
Outlook and valuations: No upside left: downgrade to ‘HOLD’
In our note titled Favourable risk‐reward, dated December 2, 2011, we had upgraded
the stock to ‘BUY’. Post that, the stock has rallied 40%, also supported by the
anticipated buy‐back and delisting related news, leading to P/E expansion to 11.8x
FY13E. At CMP of INR434, we believe there is no upside left. Hence, we are
downgrading our recommendation to ‘HOLD’ from ‘BUY’ with target price of INR390.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mphasis’ Q1FY13 numbers fell short of expectations. While revenue
declined 3% QoQ at USD266mn, net profit came in flat QoQ at INR1.84bn.
HP revenue channel continues to trend down (4% QoQ decline), but
direct business growth posted healthy traction (9% QoQ). Operating
margin (EBITDA) continued to inch up with 60bps improvement to 18.5%,
in line with expectation. We note that due to cash flow hedge accounting,
the company does not benefit from weaker rupee in the same quarter.
While the weak result does not impact our earnings estimate, the strong
stock performance over the past three months (up 40%) post our upgrade
to ‘BUY’ does not leave any upside. Hence, we downgrade our
recommendation to ‘HOLD’ with target price of INR390.
HP ES business decline impact to be limited
Mphasis has gained traction in HP non‐ES businesses—printing and imaging, R&D,
technology consulting (SI)—leading to stronger order book. While in Q1FY13, revenue
from this segment was impacted due to delays, for the full year it is expected to
contribute USD75mn‐80mn. Further, significant sales efforts to grow direct business
are already seeing healthy trend with the past two quarters’ CQGR close to 10%. We
expect this to offset the weakness in the HP ES segment (we have factored 10% decline
in FY13) that continues to be impacted due to market share loss by parent HP.
Margin turnaround expected to sustain
The company’s operating margins have improved 310bps to 18.5% over the past two
quarters. This was led by cost and efficiency related initiatives, which will continue. We
further note that Mphasis will benefit from the weak rupee with a lag and hence we
expect EBITDA margin to sustain over 18.5% going forward.
Outlook and valuations: No upside left: downgrade to ‘HOLD’
In our note titled Favourable risk‐reward, dated December 2, 2011, we had upgraded
the stock to ‘BUY’. Post that, the stock has rallied 40%, also supported by the
anticipated buy‐back and delisting related news, leading to P/E expansion to 11.8x
FY13E. At CMP of INR434, we believe there is no upside left. Hence, we are
downgrading our recommendation to ‘HOLD’ from ‘BUY’ with target price of INR390.
09 March 2012
Mphasis: Change in INR/USD rate to drive EPS upgrade; cut revenue estimates: ::Kotak Securities PDF link
Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Results
Mphasis: Change in INR/USD rate to drive EPS upgrade; cut revenue estimates
` Estimate revision: Earnings up on revised INR/USD rate, cut in revenue
estimate by 0.7-1.4%
` Highlights from the January 2012 quarter earnings call
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily05032012.pdf
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Results
Mphasis: Change in INR/USD rate to drive EPS upgrade; cut revenue estimates
` Estimate revision: Earnings up on revised INR/USD rate, cut in revenue
estimate by 0.7-1.4%
` Highlights from the January 2012 quarter earnings call
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily05032012.pdf
MPHASIS BFL LTD : REDUCE TARGET PRICE: RS.379 :: Kotak Securities (PDF link)
Please Share:: India Equity Research Reports, IPO and Stock News
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.
India Equity Research Reports, IPO and Stock News
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.
05 March 2012
Results Mphasis: Another weak quarter ::Kotak Securities (PDF link)
Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02032012.pdf
Results
Mphasis: Another weak quarter
` Weak quarter; significant EBIT and net income miss
` HP revenues decline further; non-HP revenue growth at a cost
` Estimates/TP under review; SELL after strong rally
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02032012.pdf
Results
Mphasis: Another weak quarter
` Weak quarter; significant EBIT and net income miss
` HP revenues decline further; non-HP revenue growth at a cost
` Estimates/TP under review; SELL after strong rally
03 March 2012
Mphasis Ltd - HP pressures continue, retain REDUCE ::Emkay
Please Share:: 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
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
19 December 2011
ENAM - >> Update | MphasiS
Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Focus on client diversity increases: MphasiS’ (MPHL) Q4 results showed muted growth in the HP biz (62% of rev) but witnessed a pick-up in its Direct biz segment (38% of rev; up ~19% QoQ). A ~25% QoQ growth in the non-ES part of HP biz indicates MPHL’s efforts to capture growth outside of its traditional HP biz.
Volume growth driven largely by the ITO segment (~27% of rev; up ~10% QoQ) given Applications and BPO (61% & 12% of rev resp.) stayed flat. We have recently noted the parent’s (HP) increasing focus on infra Mgmt Svcs and believe MPHL (~70% of ITO biz is HP driven) to benefit as a result.
MPHL continued its focus on margins and we believe levers such as utilization & replacement of sub-contractors with own employees would provide further upside to EBIT margin from the current level of ~14% (FY11).
Valuations: We have upgraded our FY12 revenue / EPS estimates by ~6% / 1% to Rs 56.4 bn / Rs 36 respectively, largely to incorporate INR depreciation. We revise our TP to Rs 370 (vs. Rs 355 earlier) based on 10x FY12E EPS.Maintain BUY with an upside of 16% from CMP of Rs 315. The stock currently trades at 8.6x FY12E earnings.
Our estimates are based on INR/USD of Rs 46.5 for FY12E adjusted for Oct year-
18 December 2011
Mphasis Ltd Top client woes continue to drag revenue performance ::Emkay
Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mphasis Ltd
|
Top client woes continue to drag revenue performance
|
REDUCE
CMP: Rs325 Target Price: Rs325
n Op performance missed exp with below par rev growth (-4% QoQ in US$ terms) while mgns declined by ~150 bps QoQ to 17.9% aided by weak currency, improvement in utilization
n Profits at Rs 1.8 bn (-5.5% QoQ, -35.4% YoY) missed est. driven by lower op performance and lower than expected forex gains ( Rs 199 mn V/s est of ~Rs 459 mn)
n Raise our Oct’12E earnings by ~9% to Rs 35.4 aided by lower currency resets( to Rs 48/$ V/s Rs 45/$ earlier) despite further cut to modest rev growth expectations
n Retain REDUCE with an unchanged TP of Rs 325. Cash at ~27% of mkt cap will limit sharp downsides post ~ 50% fall in price in last 1 yr, however see no end to co’s woes
Mphasis Ltd Challenges persist REDUCE :Emkay
Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mphasis Ltd
|
Challenges persist
|
REDUCE
CMP: Rs326 Target Price: Rs325
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
23 November 2011
Mphasis (CMP: `315/ TP: `382/ Upside: 21%) ::Angel Model Portfolio: November 2011
Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mphasis is witnessing modest growth from non-HP channel business.
The company's ITO business is witnessing good growth, with open billable position
standing at 600 in 3QFY2011. In fact, this business segment has grown at a
scorching pace of 9.7% CQGR over 1QFY2010-3QFY2011 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. Also, in our view, there is a good possibilities that the company may use
its cash pile (~`1,500cr) to announce a buy-back.
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 10% over FY2011E-13E. We
value the company at 10x FY2013E (March ending) EPS of `38.2, which gives us
a target price of `382 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 is witnessing modest growth from non-HP channel business.
The company's ITO business is witnessing good growth, with open billable position
standing at 600 in 3QFY2011. In fact, this business segment has grown at a
scorching pace of 9.7% CQGR over 1QFY2010-3QFY2011 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. Also, in our view, there is a good possibilities that the company may use
its cash pile (~`1,500cr) to announce a buy-back.
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 10% over FY2011E-13E. We
value the company at 10x FY2013E (March ending) EPS of `38.2, which gives us
a target price of `382 and recommend a Buy rating on the stock.
09 October 2011
Mphasis (MBFL.BO, Neutral) :: Goldman Sachs:: Second Annual IT Services Trip
Please Share:: India Equity Research Reports, IPO and Stock News
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mphasis (MBFL.BO, Neutral)
1) HP remains a drag on the overall business – Business from the HP channel may
remain a drag over the next one year with very limited growth. The company
suggested that they would have been able to grow at the industry rate if the HP
channel did not face ramp downs.
2) HP services business outlook is still modest – Management stated that the HP
services side of the business is still modest and they expect a single digit revenue
growth from this business in the current year.
3) Continue to search for acquisitions – They continue to explore for acquisition
opportunities in different geographies and service areas, e.g., product related targets in
BFSI and service related targets in emerging markets.
for details of remaining company see link
Goldman Sachs:: Second Annual IT Services Trip: LT drivers exist, 2012 outlook hazy
11 September 2011
Mphasis (CMP: `358/ TP: `420/ Upside: 18%):: Angel Broking Picks for September 2011
Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mphasis is witnessing modest growth from the non-HP channel business. The
company's ITO business is witnessing good growth, with open billable position
standing at 600 in 3QFY2011. In fact, this business segment has grown at a
scorching pace of 9.7% CQGR over 1QFY2010-3QFY2011 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 10% over FY2011E-13E.
We value teh company at 11.5x FY2013E (October ending) EPS of `36.4, which
gives us a target price of `420 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 is witnessing modest growth from the non-HP channel business. The
company's ITO business is witnessing good growth, with open billable position
standing at 600 in 3QFY2011. In fact, this business segment has grown at a
scorching pace of 9.7% CQGR over 1QFY2010-3QFY2011 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 10% over FY2011E-13E.
We value teh company at 11.5x FY2013E (October ending) EPS of `36.4, which
gives us a target price of `420 and recommend a Buy rating on the stock.
02 September 2011
UBS :: MphasiS - Weakness in HP revenue likely to continue
Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
MphasiS Limited
Weakness in HP revenue likely to continue
[ EXTRACT]
HP’s restructuring could impact near-term revenue visibility
Hewlett-Packard (HP), which owns 60.5% of MphasiS and contributes nearly 70%
of revenue, has announced a major restructuring of its business. Enterprise services
remains weak for HP, which has guided for margin decline in this segment over the
next few quarters. We expect this to impact revenue visibility for MphasiS.
HP revenue could turn negative, dragging down growth
Revenue from HP is already sluggish at 1-2% QoQ growth, down from 2-3% a few
quarters ago. While MphasiS management does not expect it, we do not rule out a
negative growth contribution from HP-related revenue streams. We also expect
further pricing pressure given the pressure on HP’s margins.
Lower revenue and earnings estimates
We lower our FY12/13 revenue estimates 5%/11% and our FY12/13 EPS estimates
from Rs36.94/41.34 to Rs34.24/37.37 (7%/10%) to reflect the potential slowdown
in both HP and non-HP revenue due to a slower demand environment.
Valuation: downgrade to Sell, lower price target from Rs500 to Rs350
We downgrade our rating from Neutral to Sell on revenue concerns related to HP.
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a 12% WACC
and 3% terminal growth.
MphasiS Limited
MphasiS, a unit of Hewlett Packard (HP), was formed in 2000 with the merger
of BFL Software and US-based MphasiS Corporation. HP, through EDS, holds a
61% stake in the company. It had more than 36,000 employees and posted
US$878m revenue in FY09. MphasiS offers application development and
maintenance, infrastructure management, and IT-enabled services, including
business process outsourcing. The company's customers are from financial
services, retail and manufacturing, telecom and media, healthcare, transport, and
utilities. It derives around 70% of revenue from the US.
Statement of Risk
We believe that the recently announced restructuring at Hewlett-Packard,
coupled with a sharp decline in IT spending due to macroeconomic disruptions
could impact our revenue estimates. Appreciation of the Indian rupee against
major global currencies could also impact profitability for the company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
MphasiS Limited
Weakness in HP revenue likely to continue
[ EXTRACT]
HP’s restructuring could impact near-term revenue visibility
Hewlett-Packard (HP), which owns 60.5% of MphasiS and contributes nearly 70%
of revenue, has announced a major restructuring of its business. Enterprise services
remains weak for HP, which has guided for margin decline in this segment over the
next few quarters. We expect this to impact revenue visibility for MphasiS.
HP revenue could turn negative, dragging down growth
Revenue from HP is already sluggish at 1-2% QoQ growth, down from 2-3% a few
quarters ago. While MphasiS management does not expect it, we do not rule out a
negative growth contribution from HP-related revenue streams. We also expect
further pricing pressure given the pressure on HP’s margins.
Lower revenue and earnings estimates
We lower our FY12/13 revenue estimates 5%/11% and our FY12/13 EPS estimates
from Rs36.94/41.34 to Rs34.24/37.37 (7%/10%) to reflect the potential slowdown
in both HP and non-HP revenue due to a slower demand environment.
Valuation: downgrade to Sell, lower price target from Rs500 to Rs350
We downgrade our rating from Neutral to Sell on revenue concerns related to HP.
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a 12% WACC
and 3% terminal growth.
MphasiS Limited
MphasiS, a unit of Hewlett Packard (HP), was formed in 2000 with the merger
of BFL Software and US-based MphasiS Corporation. HP, through EDS, holds a
61% stake in the company. It had more than 36,000 employees and posted
US$878m revenue in FY09. MphasiS offers application development and
maintenance, infrastructure management, and IT-enabled services, including
business process outsourcing. The company's customers are from financial
services, retail and manufacturing, telecom and media, healthcare, transport, and
utilities. It derives around 70% of revenue from the US.
Statement of Risk
We believe that the recently announced restructuring at Hewlett-Packard,
coupled with a sharp decline in IT spending due to macroeconomic disruptions
could impact our revenue estimates. Appreciation of the Indian rupee against
major global currencies could also impact profitability for the company.
30 August 2011
Mphasis Ltd -Another quarter aided by one offs REDUCE ::Emkay
Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mphasis Ltd
|
Another quarter aided by one offs
|
REDUCE
CMP: Rs396 Target Price: Rs325
n Mphasis’s string of poor show continues. While reported pfts at Rs 1.9 bn (-11% QoQ, -29% YoY) was higher than est., adjusted pfts at Rs 1.5 bn were mgnlly lower than expected
n Adjusted revenues were flat both sequentially and on a YoY basis with direct business growing at a modest 3% QoQ (lower than peers) and HP business continues to suffer
n We cut our Oct’12E earnings by ~10% to Rs 32.6 despite incorporating in Wyde acquisition as we cut organic revenues/margins expectations sharply( refer section below)
n Retain REDUCE with a revised TP of Rs 325(V/s Rs 400 earlier) based on ~10x Oct’12E EPS. A potential open offer from parent HP remains an upside risk to our call
MphasiS – Unfavourable risk-reward ::RBS
Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Despite MphasiS's push to diversify outside HP channel, we believe stagnant HP channel
revenues and the risk to direct channel revenues from macro headwinds will result in
continuing earnings pressure in the medium term. Even after a material correction in the
stock, we are unable to turn positive at this stage. Hold.
Medium-term challenges to continue as addressing structural issues could take time
The 3Q11 results continued to highlight the ongoing structural issues that plague MphasiS.
HP business revenues stalled (down 0.3% qoq adjusted for one-offs), which management
linked to a slowdown in HP’s global applications practice. Despite diversifying and scaling up
the non-HP business (33% of revenues currently), we believe it would require outsized
investments to make a meaningful impact in the medium term as weak macro environment
threatens its growth target of 3-5% qoq for the non-HP segment. We reduce our target
multiple to 10x from 11x on EPS for the four quarters ending March 2013F to factor a further
increase in pressure on earnings. Despite incorporating Wyde Corp (recently acquired) in our
estimates, we reduce our revenue forecasts 6%/9% and our EPS forecasts 11%/14% for
FY12/13. However, the material stock correction (down 20% in the past three months) and a
healthy net cash balance (US$364m post acquisition payout) limit significant downside. We
reiterate Hold, with a target price of Rs365. In the midcap space, we prefer Satyam, Polaris
Software, NIIT Tech and Hexaware given their better business outlook and/or cheaper
valuations, on our estimates.
3Q11 revenues adjusted for one-offs were below our expectations
3Q11 revenues rose 2.9% qoq to US$290m. Excluding one-offs of US$15m and including
deferred revenues of US$8m (while costs were booked), revenues rose only 0.5% qoq (RBS
forecast: up 3.2%). This factors in a 0.3% qoq drop in HP business revenues (adjusted for these
items) and a 2% qoq increase in direct business. While rates of the HP business were not
compromised, risk related to potential discounts or muted volume growth remains.
Normalised margins take a hit, but reported PAT propped up by one-time items
MphasiS reported EBIT margin of 16.0% in 3Q11, which adjusting for one offs, was at 12.4%
(RBS forecast: 14.6%). Key reasons for muted margin were wage hikes (250bp impact) and IP
development costs (1.3% of top line). However, reported PAT, at Rs1.95bn, exceeded our
forecast of Rs1.74bn due to one-time revenue of US$15m and cost reversals.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Despite MphasiS's push to diversify outside HP channel, we believe stagnant HP channel
revenues and the risk to direct channel revenues from macro headwinds will result in
continuing earnings pressure in the medium term. Even after a material correction in the
stock, we are unable to turn positive at this stage. Hold.
Medium-term challenges to continue as addressing structural issues could take time
The 3Q11 results continued to highlight the ongoing structural issues that plague MphasiS.
HP business revenues stalled (down 0.3% qoq adjusted for one-offs), which management
linked to a slowdown in HP’s global applications practice. Despite diversifying and scaling up
the non-HP business (33% of revenues currently), we believe it would require outsized
investments to make a meaningful impact in the medium term as weak macro environment
threatens its growth target of 3-5% qoq for the non-HP segment. We reduce our target
multiple to 10x from 11x on EPS for the four quarters ending March 2013F to factor a further
increase in pressure on earnings. Despite incorporating Wyde Corp (recently acquired) in our
estimates, we reduce our revenue forecasts 6%/9% and our EPS forecasts 11%/14% for
FY12/13. However, the material stock correction (down 20% in the past three months) and a
healthy net cash balance (US$364m post acquisition payout) limit significant downside. We
reiterate Hold, with a target price of Rs365. In the midcap space, we prefer Satyam, Polaris
Software, NIIT Tech and Hexaware given their better business outlook and/or cheaper
valuations, on our estimates.
3Q11 revenues adjusted for one-offs were below our expectations
3Q11 revenues rose 2.9% qoq to US$290m. Excluding one-offs of US$15m and including
deferred revenues of US$8m (while costs were booked), revenues rose only 0.5% qoq (RBS
forecast: up 3.2%). This factors in a 0.3% qoq drop in HP business revenues (adjusted for these
items) and a 2% qoq increase in direct business. While rates of the HP business were not
compromised, risk related to potential discounts or muted volume growth remains.
Normalised margins take a hit, but reported PAT propped up by one-time items
MphasiS reported EBIT margin of 16.0% in 3Q11, which adjusting for one offs, was at 12.4%
(RBS forecast: 14.6%). Key reasons for muted margin were wage hikes (250bp impact) and IP
development costs (1.3% of top line). However, reported PAT, at Rs1.95bn, exceeded our
forecast of Rs1.74bn due to one-time revenue of US$15m and cost reversals.
28 August 2011
Mphasis BFL: Outlook bleak, valuations rich; cut estimates and reiterate SELL::Kotak Sec,
Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mphasis BFL (MPHL)
Technology
Outlook bleak, valuations rich; cut estimates and reiterate SELL. We cut our
lower-than-consensus FY2013E (fiscal year ending October 2012) EPS estimate for
Mphasis further to Rs30 from Rs36. Revenue visibility is poor given sustained weakness
in HP enterprise segment (~60% of revenues) and increased macro uncertainty. In
addition, there are no obvious margin levers despite margins having corrected
substantially in the recent quarters. Cut our end-October 2012E TP to Rs300 (from
Rs360). SELL.
Cut our estimates and target price
Exhibit 1 depicts the revision in our FY2012/13E (we define year-ending October 2011 as FY2012)
estimate for Mphasis. Poor revenue growth visibility from the large HP enterprise segment (~60%
of revenues) and increased macro uncertainty drives a 1.7% and 5.7% cut in our FY2012E and
FY2013E US$ revenue estimates, respectively despite factoring in revenue uplift from the recent
Wyde consolidation. Reported one-offs in 3QFY12 drive a 5% increase in FY2012E EPS estimate to
Rs38.6 but we cut our EPS estimate for FY2013E to Rs30 from Rs36, driven by cut in OPM
estimates in addition to lowered revenue forecast. We reiterate our SELL rating on the stock with a
revised end-October 2012 target price of Rs300/share (from Rs360), implying a PE multiple of 10X.
Fundamentals have weakened substantially
Mphasis’ revenue/ OPM performance has been weak for the past few quarters. Yoy revenue
growth has tapered down to sub-6% and the company may report a yoy decline in US$ revenues
in the next quarter. More importantly, margins have fallen off a cliff – adjusted OPM of 14% for
the July 2011 quarter compares poorly with 23.4% reported in July 2010 and even poorer to the
peak of 28.5% hit in April 2009 quarter. In fact, we do not adjust any prior period reported
EBITDA margin levels for this comparison. Now, the costs the company is reversing in recent
quarters must have been accrued in one of the prior quarters implying that OPM for earlier
quarters was under-stated. In this light, the fall in margins is even sharper.
Outlook is bleak and valuations rich; SELL
Growth from the HP channel has slowed down considerably owing to weakness in the HP
Enterprise segment which contributes a bulk of Mphasis’ HP channel revenues. The management
has indicated a subdued revenue outlook from this segment going forward. Burden of revenue
growth, hence, falls on the non-HP Enterprise business and direct channel business. These two
contribute ~40% to Mphasis’ revenues. In this light our forecast organic revenue growth of 9%
yoy in FY2012E, implying nearly 23% yoy growth from the two ‘growth’ channels, may not be
conservative. Margin uplift, in the absence of revenue growth, will be difficult to come by given
the lack of any obvious levers. Valuations at >12X FY2013E EPS are expensive. SELL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mphasis BFL (MPHL)
Technology
Outlook bleak, valuations rich; cut estimates and reiterate SELL. We cut our
lower-than-consensus FY2013E (fiscal year ending October 2012) EPS estimate for
Mphasis further to Rs30 from Rs36. Revenue visibility is poor given sustained weakness
in HP enterprise segment (~60% of revenues) and increased macro uncertainty. In
addition, there are no obvious margin levers despite margins having corrected
substantially in the recent quarters. Cut our end-October 2012E TP to Rs300 (from
Rs360). SELL.
Cut our estimates and target price
Exhibit 1 depicts the revision in our FY2012/13E (we define year-ending October 2011 as FY2012)
estimate for Mphasis. Poor revenue growth visibility from the large HP enterprise segment (~60%
of revenues) and increased macro uncertainty drives a 1.7% and 5.7% cut in our FY2012E and
FY2013E US$ revenue estimates, respectively despite factoring in revenue uplift from the recent
Wyde consolidation. Reported one-offs in 3QFY12 drive a 5% increase in FY2012E EPS estimate to
Rs38.6 but we cut our EPS estimate for FY2013E to Rs30 from Rs36, driven by cut in OPM
estimates in addition to lowered revenue forecast. We reiterate our SELL rating on the stock with a
revised end-October 2012 target price of Rs300/share (from Rs360), implying a PE multiple of 10X.
Fundamentals have weakened substantially
Mphasis’ revenue/ OPM performance has been weak for the past few quarters. Yoy revenue
growth has tapered down to sub-6% and the company may report a yoy decline in US$ revenues
in the next quarter. More importantly, margins have fallen off a cliff – adjusted OPM of 14% for
the July 2011 quarter compares poorly with 23.4% reported in July 2010 and even poorer to the
peak of 28.5% hit in April 2009 quarter. In fact, we do not adjust any prior period reported
EBITDA margin levels for this comparison. Now, the costs the company is reversing in recent
quarters must have been accrued in one of the prior quarters implying that OPM for earlier
quarters was under-stated. In this light, the fall in margins is even sharper.
Outlook is bleak and valuations rich; SELL
Growth from the HP channel has slowed down considerably owing to weakness in the HP
Enterprise segment which contributes a bulk of Mphasis’ HP channel revenues. The management
has indicated a subdued revenue outlook from this segment going forward. Burden of revenue
growth, hence, falls on the non-HP Enterprise business and direct channel business. These two
contribute ~40% to Mphasis’ revenues. In this light our forecast organic revenue growth of 9%
yoy in FY2012E, implying nearly 23% yoy growth from the two ‘growth’ channels, may not be
conservative. Margin uplift, in the absence of revenue growth, will be difficult to come by given
the lack of any obvious levers. Valuations at >12X FY2013E EPS are expensive. SELL.
26 August 2011
MphasiS : Weaker performance continues in 3Q11 results HSBC Research,
Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MphasiS (MPHL IN)
N(V): Weaker performance continues in 3Q11 results
Weak revenue growth continues
3Q margins disappoint on a normalised basis; will remain
under pressure, in our view
We cut our TP to INR470 from INR380, because of lower
estimates and target multiple, but remain Neutral (V)
MphasiS reported revenues of INR12.94bn, +2.9% q-o-q, marginally below our estimate of
INR12.98bn; in USD terms, revenues were USD290m, +3% q-o-q. Revenues include a oneoff credit reversal of INR665m, excluding which the top line declined 2.4% q-o-q. Provisions
were written off in selling expense as well as cost of sales, aiding margins. EBIT margins fell
50bp to 16% on account of higher depreciation expense and wage hikes effective this quarter.
The EBIT margin post adjustment for one-off line items is 9.2% (refer to table 1). Nonoperational income contributed to 17% of profit before tax. Net earnings per share at INR9.25
declined 10.3% q-o-q on account of a higher tax rate (22% compared with 15% in 2Q11).
Divisional performance: BPO services dampened growth, declining 9.6% sequentially,
owing to one-time revenue recognised in the previous quarter. On a normalised basis,
volumes grew merely 1.3% sequentially. Management alluded to pricing pressure from
HP and other direct channel customers, increasing risks to margin recovery. Macro
weakness, particularly in the banking and insurance (c35% of revenues) vertical, is likely
to add pressure on MphasiS. Efforts to diversify, in the form of 18 new direct channel
clients and 13 of these new customers in emerging industries, is comforting, but the scale
remains too small to influence overall company growth significantly.
Headcount addition weak as well: Net headcount declined 1.1% sequentially,
particularly onsite (-2.4%) where application services sub-contractors were replaced by
full-time employees. The number of open positions in apps and IT are 825 and 600,
respectively, which together is 3.5% of the current employee strength. Management is
considering inorganic growth initiatives to make use of excess cash (USD459m) on its
balance sheet. MphasiS expects to consolidate Wyde Corporation from this September,
and this acquisition is thought to be valued at 2.5x-3.5x TTM revenues (~USD30m).
Valuations: We revise our FY12 earnings estimate to INR37.9, from INR40, owing to
lower top-line growth and profitability. We cut our target valuation as well to 10x from 12x
on our FY12e EPS because of the lower earnings growth outlook and overall
macroeconomic uncertainty. This is a 45% discount to larger peer Infosys and 30% discount
to HCLT; therefore, we cut our TP to INR380 from INR470 and remain Neutral(V).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MphasiS (MPHL IN)
N(V): Weaker performance continues in 3Q11 results
Weak revenue growth continues
3Q margins disappoint on a normalised basis; will remain
under pressure, in our view
We cut our TP to INR470 from INR380, because of lower
estimates and target multiple, but remain Neutral (V)
MphasiS reported revenues of INR12.94bn, +2.9% q-o-q, marginally below our estimate of
INR12.98bn; in USD terms, revenues were USD290m, +3% q-o-q. Revenues include a oneoff credit reversal of INR665m, excluding which the top line declined 2.4% q-o-q. Provisions
were written off in selling expense as well as cost of sales, aiding margins. EBIT margins fell
50bp to 16% on account of higher depreciation expense and wage hikes effective this quarter.
The EBIT margin post adjustment for one-off line items is 9.2% (refer to table 1). Nonoperational income contributed to 17% of profit before tax. Net earnings per share at INR9.25
declined 10.3% q-o-q on account of a higher tax rate (22% compared with 15% in 2Q11).
Divisional performance: BPO services dampened growth, declining 9.6% sequentially,
owing to one-time revenue recognised in the previous quarter. On a normalised basis,
volumes grew merely 1.3% sequentially. Management alluded to pricing pressure from
HP and other direct channel customers, increasing risks to margin recovery. Macro
weakness, particularly in the banking and insurance (c35% of revenues) vertical, is likely
to add pressure on MphasiS. Efforts to diversify, in the form of 18 new direct channel
clients and 13 of these new customers in emerging industries, is comforting, but the scale
remains too small to influence overall company growth significantly.
Headcount addition weak as well: Net headcount declined 1.1% sequentially,
particularly onsite (-2.4%) where application services sub-contractors were replaced by
full-time employees. The number of open positions in apps and IT are 825 and 600,
respectively, which together is 3.5% of the current employee strength. Management is
considering inorganic growth initiatives to make use of excess cash (USD459m) on its
balance sheet. MphasiS expects to consolidate Wyde Corporation from this September,
and this acquisition is thought to be valued at 2.5x-3.5x TTM revenues (~USD30m).
Valuations: We revise our FY12 earnings estimate to INR37.9, from INR40, owing to
lower top-line growth and profitability. We cut our target valuation as well to 10x from 12x
on our FY12e EPS because of the lower earnings growth outlook and overall
macroeconomic uncertainty. This is a 45% discount to larger peer Infosys and 30% discount
to HCLT; therefore, we cut our TP to INR380 from INR470 and remain Neutral(V).
Subscribe to:
Posts (Atom)