4 April 2016
Blackstone to acquire HP’s stake
~USD200m annual revenue visibility from HPE welcome
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
12M Avg Val (INR M)
Free float (%)
Blackstone acquires HPE stake, triggering open offer for 26% minority
Financials Snapshot (INR b)
2016E 2017E 2018E
EPS Gr. (%)*
276.6 288.0 301.1
Shareholding pattern (%)
Dec-15 Sep-15 Dec-14
Blackstone India has entered into a definitive agreement with HPE (HP
Enterprise) to buy a majority stake in Mphasis. HPE currently owns 60.5% of
Mphasis. Blackstone will pay a purchase price of INR430 per share to HPE.
This will trigger a mandatory open offer for a purchase of additional 26%
shares of the company (open offer @INR457.54/share) and the acquiring entity
has released a public announcement to the stock exchanges. Based on the
open offer subscription, the purchase price consideration will vary between
INR54.66b and INR70.71b (or, approximately USD825m - USD1.1b).
HPE and Blackstone have agreed a Master Services Agreement (MSA) which
HPE proposes to sign with Mphasis, post approval by Mphasis’ Board of
Directors and shareholders. The duration of the MSA is five years with three
automatic renewals of two years each. Under this MSA, HPE has proposed to
commit a minimum revenue amount escalating year over year and totaling
USD990m over the next five years
Two clear positives – Visibility of HP revenues and new logos in Direct
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
The MSA with minimum revenues totaling USD990m over 5 years lends
visibility to revenues from the HP Channel for MPHL, which is positive, and also
implies bottoming out of revenues from HP business near current levels.
Mphasis will be included in HPE’s Preferred Provider Program opening up
significant additional revenue opportunities.
Secondly, Blackstone cited the synergy of exposing its portfolio as potential
clientele for MPHL, implying some leads for the Direct channel business as well.
MPHL could leverage these specially to create more credible references in its
focus areas of Digital and GRC. Blackstone India has entered into a definitive
agreement with HPE (HP Enterprise) to buy a majority stake in Mphasis. HPE
currently owns 60.5% of Mphasis. Blackstone will pay a purchase price of
INR430 per share to HPE.
One multiple accretive possibility – could the dividend be upped given the
base on books?
Net cash on MPHL’s books stands at INR112 at present, 24.5% of CMP. This is
one obvious avenue of efficiency for Blackstone, to improve the capital
allocation, return ratios and consequently valuation multiple. We saw this with
HEXW too, where healthy payout ratios have meant a premium multiple to
even some of the better performing peers.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
(Sagar.Lele@MotilalOswal.com); +91 22 3982 5585