Mphasis Ltd Sees Strong Demand For Environment To Sustain Globally

BUY

CMP: Rs2952  

Target Price: Rs3650

* Mr. Nitin Rakesh, CEO, and Mr. Manish Duggar, CFO, in an interaction with us, highlighted that cloud migration, data, core modernization and customer experience are major tech consumption trends, and the company's investments have enabled it to capitalize on growth opportunities in those areas and sustain growth momentum.

* Focus on proactive large deal origination, client mining, new logo additions and a steady increase in deal sizes and tenure led to robust deal TCV wins and revenue conversion. Traction in BFSI, Hitech, Travel and Healthcare augurs well for sustainable growth.

* Mphasis remains confident of delivering organic EBITM within 15.5-17% in FY22. The integration of Blink will have an incremental 100bps negative impact for the first two years. It expects margins to remain stable with an upward bias, considering the offshore shift, flattening pyramid and lower dilutive impact from Blink, with growing revenue negating wage inflation.

* We retain Buy on Mphasis with a TP of Rs3,650 (33x Mar'24E EPS) on continued strength in the Direct business with stable margins. Overall revenue growth should converge with the Direct business as the share of the DXC business shrinks further.