Mortgage business volatility and deal pushouts to weigh on FY25

Company
11 Mar 2024
5 Min read 
  • Mphasis (MPHL) reported 3QFY24 results in line with estimates, with organic revenue growth of -2.8% QoQ.
  •  The mortgage business and deal pushouts are expected to weigh on FY25 performance.
  •  Margin improvement is expected to be gradual.
  •  The company's revenue performance has been volatile, particularly in the banking-heavy portfolio.
  •  The management expects the mortgage business to recover in 4QFY24.
  •  The current valuation of 23x FY26E EPS is considered fair, leading to a Neutral rating.
  •  The top client saw a major decline in 3Q, led by softness in regional banks and cyclicality in the mortgage business.
  •  The company's margin performance was impacted by the integration of Silverline.
  •  The pipeline for both BFS and non-BFS segments remains healthy.
  •  The weakness in the mortgage business continues, but the pace of deceleration has started to ebb.
  •  FY25E/FY26E revenue growth estimates have been trimmed by 180bp/30bp.
  •  The company expects to maintain its margin band of 15.25%-16.25%.
  •  The pipeline to TCV conversion remains strong, but TCV-to-revenue conversion has remained steady.
  •  The management is confident in reversing the 3Q revenue impact in 4Q.
  •  The weakness in the Hi-Tech vertical was attributed to furloughs.
  •  The company's investments in building capabilities and hiring leadership teams are expected to drive future growth.
  •  The company's 3Q margin was impacted by the Silverline integration, but furloughs did not have an impact.
  •  The weakness in 3Q organic growth was attributed to furloughs, weakness in the mortgage business, and continued slowdown in discretionary spending.
  •  The company expects the conversion rate from TCV to revenue to improve in 4Q.
  •  The company's margin band of 15.25%-16.25% is expected to be maintained.
  •  The weakness in the mortgage business continues, but recovery is expected in the coming quarters.
  •  The current valuation of 23x FY26E EPS is considered fair, leading to a Neutral rating.
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