Target Price: Rs3650
* Mphasis delivered in-line operating performance in Q4. Gross revenue grew by 4% QoQ to USD431mn, meeting our expectations, thanks to continued traction in the Direct business. EBITM grew by 10bps QoQ to 15.2%.
* Revenues of the Direct business rose 5.2% QoQ (4.7% CC) to Rs30.2bn. Broad-based demand, healthy new deal wins (USD347mn in Q4) and a strong deal pipeline should help sustain revenue growth. Management is confident of delivering industry-leading growth in Direct in FY23. It also expects further convergence of the overall growth rate with the Direct business as the share of DXC reduces further.
* DXC revenues grew by 1.6% QoQ (CC 1.1%; after 7 quarters of sequential decline) but fell 43.6% YoY to ~Rs1.7bn. DXC's share of revenue declined to 5.2%, closer to the company's guidance of mid-single digits by FY22-end. Although the relationship with DXC remains strong, it is not a focused investment area for Mphasis now.
* We are largely retaining our FY23/FY24 EPS estimates (<0.5% change). We maintain Buy with a TP of Rs3,650 at 33x Mar'24E EPS, considering the strength of the Direct business and attractive valuations.