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UBS Investment Research
MphasiS Limited
M phasiS acquires Wyde Corp
Event: acquisition of 100% stake in Wyde Corp
MphasiS announced the acquisition of US-based Wyde Corp, which owns
Wynsure, an insurance policy administration software. Wyde reported revenue of
US$30m in 2010 and employs over 200 domain professionals worldwide. Wyde's
customer base of 25 includes Tier I as well as mid-market insurers across the US,
France and Canada. MphasiS will pay 2.5-3.0x sales for a 100% stake in Wyde.
Impact: deal to add 2.5% to revenue and 2.2% to EPS on full-year basis
Wyde operates at 18% EBITDA margins and net margins are largely in line given
the US$10m cash on books. We expect this transaction to add 2.5% to revenue and
2.2% to EPS (post integration charges) on a full-year basis. We expect the
transaction to be integrated into MphasiS’ books from Q4 FY11 (end-October
2011).
Action: acquisition is positive, but unlikely to improve sentiment on stock
The acquisition is in line with the management strategy to strengthen its presence
in selective verticals such as Insurance. With the integration likely to happen only
in Q4 FY11, we expect minimal upgrade to FY11 EPS. We believe the EPS
accretion due to Wyde is unlikely to compensate for the continued weakness seen
in HP-related accounts (~70% of revenue). We expect a potential buyback
announcement in August 2011 to the tune of US$60-80m (3-4% of current market
cap), which is also unlikely to be a meaningful stock price trigger.
Valuation: maintain Neutral rating
We maintain our DCF-based price target of Rs500.
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
A downtick in IT Services spending could result in downward revision of our
earnings estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
MphasiS Limited
M phasiS acquires Wyde Corp
Event: acquisition of 100% stake in Wyde Corp
MphasiS announced the acquisition of US-based Wyde Corp, which owns
Wynsure, an insurance policy administration software. Wyde reported revenue of
US$30m in 2010 and employs over 200 domain professionals worldwide. Wyde's
customer base of 25 includes Tier I as well as mid-market insurers across the US,
France and Canada. MphasiS will pay 2.5-3.0x sales for a 100% stake in Wyde.
Impact: deal to add 2.5% to revenue and 2.2% to EPS on full-year basis
Wyde operates at 18% EBITDA margins and net margins are largely in line given
the US$10m cash on books. We expect this transaction to add 2.5% to revenue and
2.2% to EPS (post integration charges) on a full-year basis. We expect the
transaction to be integrated into MphasiS’ books from Q4 FY11 (end-October
2011).
Action: acquisition is positive, but unlikely to improve sentiment on stock
The acquisition is in line with the management strategy to strengthen its presence
in selective verticals such as Insurance. With the integration likely to happen only
in Q4 FY11, we expect minimal upgrade to FY11 EPS. We believe the EPS
accretion due to Wyde is unlikely to compensate for the continued weakness seen
in HP-related accounts (~70% of revenue). We expect a potential buyback
announcement in August 2011 to the tune of US$60-80m (3-4% of current market
cap), which is also unlikely to be a meaningful stock price trigger.
Valuation: maintain Neutral rating
We maintain our DCF-based price target of Rs500.
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
A downtick in IT Services spending could result in downward revision of our
earnings estimates.
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