15 May 2021
4QFY21 Results Update | Sector: Technology
Mphasis
Buy
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financials & Valuations (INR b)
Y/E Mar
2021 2022E
97.2
106.7
Sales
16.1
16.7
EBIT Margin
12.2
14.2
PAT
64.2
74.9
EPS (INR)
1.7
16.6
EPS Gr. (%)
349.3
379.7
BV/Sh. (INR)
Ratios
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div Yield (%)
19.7
16.8
101.2
28.0
5.2
17.5
3.6
20.8
17.7
60.8
24.0
4.7
15.2
2.5
CMP: INR1,789
TP: INR2,030 (+13%)
Direct business to drive performance
MPHL IN
193
334.7 / 4.6
1883 / 791
6/23/66
652
2023E
122.2
18.0
17.4
91.7
22.5
416.9
23.3
20.1
60.8
19.6
4.3
12.2
3.1
DXC to remain a drag, but diminish over time
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Mar-21 Dec-20 Mar-20
56.0
56.1
56.2
17.2
16.0
14.2
21.8
22.8
23.9
5.0
5.1
5.8
FII Includes depository receipts
MPHL’s 4QFY21 revenue growth was led by 3.5% CC QoQ growth in the
Direct business, while DXC vertical (12% of revenue, -7.7% QoQ CC) remains
a drag. EBIT margin dip of 30bp QoQ was due to higher sales investments. It
won USD245m of new deals in 4QFY21, and announced its largest ever
single deal of USD250m (BFSI, 10-year duration), which will count in 1QFY22
TCV.
MPHL’s Direct business continues to deliver standout growth (FY19-21 USD
CAGR of 19%) among stocks in our coverage universe. Given the acceleration
in deal wins – TCV rose 51% YoY to USD1.1b in FY21 – and management
commentary of industry-leading growth, we expect this to continue in FY22E
(+18.7% YoY). We see the large deal momentum at MPHL as a key positive,
as it should lead to better medium-term growth visibility in the business.
This growth, despite the expected moderation in its mortgage business (DR),
implies performance in line with midcap IT Services peers like LTI, COFORGE
and MTCL, which are trading at a 20-30% premium valuation to MPHL.
We expect DXC business to run significantly below the remaining
commitment over the next few months in our base case, and view any
fallback provision or near term pick up as an upside. Our analysis suggests
that MPHL’s DXC business would decline by 30% CAGR over FY21-23E, and
settle at mid-single digit contribution by FY23E.
Reduced exposure to DXC should help lower growth concerns in the overall
business and help its comparable Direct business (FY21-23E CAGR of 17%) to
gain strength. This should lower the valuation discount v/s peers, despite
comparable growth in the Direct business.
We expect margin to improve in FY22 (+60bp YoY) and see MPHL performing
near the upper end of its guidance of 15.5-17%, helped by operating
leverage and lower exposure to DXC. This should help it deliver PAT growth
of ~20% over FY21-23E.
We have kept our estimates unchanged. Despite the DXC overhang, with
strong Digital capabilities and client relationships, MPHL is well-positioned to
be a key beneficiary in the current context. Our TP implies 22x FY23E EPS.
Maintain Buy.
Topline above our estimates led by lower-than-expected DXC decline
USD revenue grew 7% YoY to USD342m (est. USD 339m), EBIT grew 6% to
INR4,054m (est. 5% growth), and PAT declined 10% to INR3,169m (in line) in
4QFY21. Revenue (USD)/EBIT/PAT grew 6%/10%/3% YoY in FY21.
Revenue grew 2.5% QoQ to USD342m, above our estimate. In CC terms,
revenue growth stood at 2% QoQ and 4.9% YoY.
EBIT margin fell 30bp QoQ to 16.1%, in line with our estimate of 16.2%.
PAT declined 2.6% QoQ to INR3,169m, in line with our estimate.
Mukul Garg – Research analyst
(Mukul.Garg@MotilalOswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Research analyst : Anmol Garg
(Anmol.Garg@ MotilalOswal.com) /
Heenal Gada
(Heenal.Gada@MotilalOswal.com)