14 May 2020
4QFY20 Results Update | Sector: Technology
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financials & Valuations (INR b)
EPS Gr. (%)
Div Yield (%)
149.9 / 2
1015 / 612
TP: INR 860 (+7%)
Decent performance; Soft outlook!
Direct international drives growth, deal wins healthy
In-line revenue; Better than expected margins
In 4QFY20, Revenue (USD) / EBIT (INR)/PAT increased by 10%/20%/33% YoY
respectively vs our estimates of 11%/14%/11% YoY.
Revenue grew 1.5% QoQ (CC, v/s est. ~2.3%). Growth was driven by Direct
Deal wins (USD 201mn) during the quarter were healthy, 12% above the 4
quarter rolling average. 4QFY20 revenue growth at 1.5% (QoQ, CC) was
marginally behind our estimates, as weakness in DXC channel overshadowed
the healthy performance in Direct. Near term outlook remained soft as
clients reprioritize/defer some IT spends. Despite that, healthy order book,
high exposure to relatively stable verticals, and new client additions, should
help MPHL navigate these challenges.
We upgrade our FY21/22E EPS by ~8%/6%, largely driven by (a) adjustments
to our exchange rate assumptions and (b) EBIT Margin estimates (over FY21-
Shareholding pattern (%)
Mar-20 Dec-19 Mar-19
International (2.7% QoQ, CC) while DXC revenue declined (1.0% QoQ, CC).
Amongst verticals, growth was broad based with all verticals growing 1-2%
except for IT/Comm/Entertainment which declined by 3.7%.
Geography wise, Americas declined 1% QoQ while growth in Europe / RoW
grew strong at 8%/9%. This was despite Americas facing COVID headwinds
later than the other two geographies.
Revenue from the Top client declined ~6.6% QoQ. Top 2-5 clients’ segment
reported strong growth of ~3.6% QoQ.
EBIT margin expanded 10bp QoQ to 16.3%. Increase in share of fixed price
projects, cost optimization and favorable currency were the key tailwinds.
4Q witnessed the strongest order booking over past 6 quarters with deal
wins of USD201m in Direct channel; Of this, 79% were in new generation.
Given the uncertainty in the environment, management hinted at a soft
outlook on revenue growth. However, the company is confident of
maintaining its margins by using levers such as – increase in share of Fixed
Price Projects, fresher hiring, pyramid rationalization, automation and
reduced travel costs etc.
So far, there were no major demand dislocations. However, the company
indicated that clients are re-prioritizing/deferring some IT spends.
With supply issues in play, ramp-ups in April had been very tough but
management is confident that the supply situation will stabilize.
In the case of DXC, MPHL doesn’t foresee any force majeure event as of
now. MRC of USD300mn is still due.
Direct Core segment has been the growth driver and has seen strong deal
wins, new clients additions.
In terms of capital allocation, MPHL will maintain its 55-57% payout policy.
Key highlights from management commentary
FII Includes depository receipts
Sudheer Guntupalli – Research analyst
(Sudheer.Guntupalli@MotilalOswal.com); +91 22 6129 1530
Research analyst: Mohit Sharma
(Mohit.Sharma@MotilalOswal.com); +91226129 1531/
Heenal.Gada@MotilalOswal.com); +91225036 2654
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.