2 March 2012
1QFY12 Results Update | Sector: Technology
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
Downgrade to Sell
MphasiS reported 2% QoQ decline in USD revenues to USD271m v/s our expectation 1.3% growth in 1QFY12
(year-ending October). EBIT margin was 15% v/s our estimate of 17.9% due to hedge losses of INR257 on the
revenue line. PAT at INR1.85b came 14% below our estimate.
1QFY12 is the third consecutive quarter of headcount declines (down by 2,941 over the past three quarters)
indicating lower growth assumptions by the company for the future.
The company’s focus continues to be driven by cost containment v/s revenue growth. HP continues to be a
drag with USD revenues declining 8% QoQ.
We have cut our EPS estimates by 6% for FY12 and by 2% for FY13 due to the company’s underperformance in
1QFY12 and little indications of improvement in fundamentals.
The management’s commentary during the post result con-call reaffirmed our stance that the company is
more focused on cost-containment efforts as a larger portion of the business driven by HP continues to
decline. EBITDA margin is more likely to be at the lower end of the targeted 18-21% band as the company has
limited or no levers from utilization, pricing risk from the HP business and impending wage hikes effective
May 1, 2012, which could be higher than the industry as the company continues to see high attrition rates
(19% in the apps business and 22% in ITO).
with a target price of INR367, which discounts FY13E earnings by 10x.
(Nitin.Padmanabhan@MotilalOswal.com); Tel: +91 22 3982 5426
(Ashish.Chopra@MotilalOswal.com); Tel: +91 22 3982 5424