18 June 2015
Update | Sector: Technology
TP: INR400 (+4%)
Re-aligning to the “VUCA” environment
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Free float (%)
Focused on servicing the BFSI vertical through GRC and digital services
Financial Snapshot (INR b)
2015 2016E 2017E
57.9 61.0 66.1
32.3 36.0 38.8
EPS Gr. (%)* -8.6
BV/Sh. (INR) 260.8 274.3 289.1
12.8 13.4 13.8
13.1 13.8 14.9
49.6 52.1 51.6
Div yld (%)
Annualized values for 5m FY14E
Shareholding pattern (%)
Mar-15 Dec-14 Mar-14
In an environment characterized by volatility, uncertainty, complexity and
ambiguity (VUCA), MPHL is looking at critical success factors of agility, disruptive
innovation, specialization and branding to drive growth.
MPHL is targeting above-industry growth for International Direct channel and
Products segment (~60% of revenues) over FY16-18, with overall EBIT margin of
Within International Direct business, MPHL is eyeing Governance, Risk and
Compliance (GRC) and Digital to drive future growth and is targeting the
contribution from the segments to reach 50% of Direct Channel revenues from
the current 36%+.
Problems in HP Channel yet to abate. Financial performance may remain muted
as that weighs on overall business. Neutral.
Targets above-industry growth for International Direct business
MPHL aims to grow its International Direct business (55% of revenues) and
Products segment (4% of business) at a rate above the industry average over
FY16-18. It is targeting overall company EBIT margin of 14-16% (v/s 13.3% in
FY15). Incentives of senior leaders are aligned to these objectives.
Direct channel growth to come from BFSI
Banking & Capital markets (BCM) and Insurance have been the company’s focus
segments within the Direct business. Over FY12-15, the segment’s revenues
have doubled while non-BFSI segments have remained flat.
Capabilities in specialized services within the chosen vertical
Global Financial Institutions paid USD57b in fines and penalties in 2014 v/s
USD2b in 2008. Leading global banks and insurance companies are increasingly
going digital, and Forrester predicts the spending in Emerging IT Services to
increase from 28% in 2015 to 42% in 2018. These trends have driven MPHL’s
decision to specialize in GRC and Digital, to achieve its three-year objectives.
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
HP Channel to keep overall financial performance dampened
While valuations at 10.7x/9.9x FY16E/17E are at a discount to peers
(particularly after factoring the Cash Balance), sluggishness in the HP channel
and mortgage originations in the US continue to pose challenges to its Digital
Risk business. Revenue growth confidence would be the most important factor
to change our stance on the stock because margins too, will struggle to recover
until revenues turn around. Our target price of INR400 discounts FY17E EPS by
10x. We maintain our Neutral rating on the stock.
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
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