CMP: Rs2276 |
Target Price: Rs2800
* Mphasis delivered in-line operating performance in Q1. Gross revenue grew by 1.2% QoQ to USD435.9mn, reflecting some growth moderation due to the weakness in the mortgage and Europe businesses, though it came in broadly in line with our expectations. EBITM expanded by 10bps QoQ to 15.3%, 10bps above our estimate.
* Direct segment revenues grew 5.0% QoQ (2.4% CC) to Rs31.7bn. Broad-based demand, healthy new-deal wins (USD302mn in Q1) and a robust deal pipeline should help sustain revenue growth. Management is confident of sustaining healthy growth in Direct in FY23.
* DXC revenues declined by 4.4%/34.6% QoQ/YoY (CC 6.7%/36.7%) to ~Rs1.6bn. The company expects increasing convergence of overall revenue growth with that of Direct going forward, as the share of DXC revenue falls below mid-single digits.
* We cut FY23/FY24/FY25E EPS by 0.7%/1.5%/1.4%, factoring in the Q1 performance. The weakness in the mortgage business should weigh on near-term revenue growth trajectory. We maintain Buy with a TP of Rs2,800 (25x Jun'24E EPS), considering continued wallet share gains and a steady expansion in addressable markets with competency build-up.