Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  
Google
Web www.equitybulls.com
Research

| More

Mphasis - DXC will continue to be key in the near term - ICICI Securities

Posted On: 2021-01-24 22:18:31 (Time Zone: Arizona, USA)


As in the previous two quarters, damage done by the sharp revenue decline in DXC (-18% QoQ, CC) was more than offset by strong growth in direct channel (+5%). Mphasis reiterated its confidence in the validity of Minimum Revenue Commitment (MRC) and building visibility in DXC channel even beyond Sep-21. Despite the sharp reduction in its revenue contribution (now 13%), DXC will continue to be a key variable led by its potential to drive near-term earnings surprises / disappointments (given the MRC construct). Continued momentum in Direct deal wins and healthy pipeline (+50% YoY) offers comfort on medium-term growth. Even when benchmarked against other companies with robust recent deal wins, Mphasis' utilisation / margin performance was disappointing. As the deals ramp up and investments are behind, margins may see some backended benefits. Despite the underwhelming performance during the quarter on both growth and margins, we remain positive on the stock. Our optimism is based on a trinity of factors, viz. healthy growth in earnings (15% over FY21E-FY23E), high yield (avg. DPR = ~60%), and reasonable valuations (~19x FY23E EPS).

- Largely in-line revenue growth and margins. Sharp drop in DXC revenue. Sequentially, gross revenue grew 1.6% (CC). While revenue growth in Direct was strong at 5.3%, DXC reported much sharper than expected revenue decline of 18.2%. Growth was led by verticals like ITCE (+11% QoQ, USD), Logistics & Transportation (+5%) and Insurance (+4%). Within Direct channel, growth was exceptionally strong in ITCE vertical (+57%) driven by the rampup of recent large deal wins. Across geographies, Direct business within Europe stood out with a strong revenue growth of 13.5% QoQ (CC).

Unlike the rest of the industry, EBIT margins remained largely stable (+30bps) on a QoQ basis. In line with the industry, the company witnessed offshore shift given the continued travel restrictions. However, the impact of this has not materialised in to material margin expansion given the investments in both sales and delivery.

It should be noted that while gross revenue growth (+1.6%) was weak, both billable (+4.4%) and overall headcount (+3.6%) reported a higher increase. While offshore utilisations remained stable (at 80%), onsite utilisations (including trainees) witnessed sequential contraction of 400bps. The headcount increase that led to the utilisation drop seems to be more pronounced in BPO services (vs Tech Services).

- Deal wins and pipeline continued to be healthy: Company announced healthy Direct TCV wins worth US$247mn (vs US$360mn in Sep-20). It should be noted this is the fourth consecutive quarter of >US$200mn TCV wins for the company. Management hinted at ~50% YoY increase in the deal pipeline. Despite sharp declines in DXC revenue during the current quarter, management is confident about validity of MRC and even building visibility in this channel beyond Sep-21. Company hinted at stable margins with an upward bias.

- Underwhelming performance, but medium-term prospects remain healthy. Continued momentum in Direct deal wins and healthy pipeline (+50% YoY) offers comfort on medium-term growth. Even when benchmarked against other companies with robust recent deal wins, Mphasis' utilisation / margin performance was disappointing. As the deals ramp up and investments are behind, margins may see some backended benefits. Despite the underwhelming performance during the quarter on both growth and margins, we remain positive on the stock. This is driven by the trinity of factors like earnings healthy growth (15% over FY21- 23E), high yield (Avg. DPR = ~60%) and reasonable valuations (~19x FY23E EPS).

Shares of MPHASIS LTD. was last trading in BSE at Rs.1600.7 as compared to the previous close of Rs. 1599.8. The total number of shares traded during the day was 36651 in over 3406 trades.

The stock hit an intraday high of Rs. 1616.65 and intraday low of 1523.9. The net turnover during the day was Rs. 57636175.


Source: Equity Bulls

Click here to send ur comments or to feedback@equitybulls.com


Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only. www.equitybulls.com, its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. www.equitybulls.com or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.





Other Headlines:

Bharat Forge - Initiating Coverage - Constant evolution - HDFC Securities

Mahindra Logistics - Large-ticket deal win - ICICI Securities

Company Update - Huhtamaki India - ICICI Direct

Gladiator Stocks: IndusInd Bank, VIP Industries - ICICI Direct

Warehousing demand expected to grow around 160% to reach 35 million sq. ft in 2021: JLL

Telecom - Spectrum auction: Prudent investment by Bharti Airtel - ICICI Securities

JB Chemicals & Pharmaceuticals - Analyst meet takeaways - ICICI Securities

IPO Review - MTAR Technologies Ltd - ICICI Direct

Auto Sector - Monthly Volume Round-up - Feb 21 - Decent YoY Growth Continues

Aditya Birla Fashion and Retail - Focus on scaling up new businesses - ICICI Securities

Automobiles (wholesale) - Wholesales push continues despite modest retail trends - ICICI Securities

Aditya Birla Capital - Thoughtful (inclusive) conglomerate business evolution commands premium - ICICI Securities

Jubilant Foodworks - Buying in-the-money options - ICICI Securities

Multi Commodity Exchange of India - Play on rising commodity prices? - ICICI Securities

Gladiator Stocks - Sudarshan Chemical - ICICI Direct

Monthly Commodities Outlook - March 2021 - ICICI Direct

ICICI Direct - Monthly Currency Outlook: Rupee to depreciate further towards 75.00 level...

ICICI Direct - Covid Recovery Pulse - E-way bill generation in February 2021 starts on strong note...

Company Update - Virtual JLR Investor Event - Tata Motors - ICICI Direct

Analyst Meet Update - Aditya Birla Fashion and Retail - ICICI Direct

MTAR Technologies Ltd. - IPO - Huge Opportunities from Clean Energy Bodes Well - Reliance Research

ICICI Direct Derivatives Weekly View (February 26): Failure to move above 14700 may extend declines towards 14300...

Bank: Sector Credit Trends - Slows, Yet again - HDFC Securities

Piramal Enterprises - Pharma day highlights - ICICI Securities

Polymer price tracker - PVC prices rise sharply again! - ICICI Securities

Greenply Industries - Growth returns, at an inflection point - ICICI Securities

Tata Motors - JLR future proofing itself with rapid electric transition - ICICI Securities

Dairy - Higher freight cost and increase in Global SMP prices - ICICI Securities

Analyst Meet Update - Nestlé India (Hold): Focus on product innovation, expanding rural reach - ICICI Direct

MTAR Technologies Ltd - A strong player in booming high precision engineering... - Geojit

Rollover Report for February - March 2021 : Angel Broking

Reaction from industry experts on Q3FY21 GDP numbers

M. Govinda Rao, Chief Economic Adviser, Brickwork ratings on Q3FY21 GDP numbers

Mr. Dhiraj Relli, MD & CEO, HDFC securities views on Q3FY21 GDP Growth Number

Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research on Q3FY21 GDP

Rollover Analysis - Feb 21, 2021 - YES Securities

Consumer Durables - Demand-driven recovery continues - HDFC Securities

Cement - Demand surprises; earnings upgrade to continue - ICICI Securities

Gladiator Stocks - TeamLease Services - ICICI Direct

Gladiator Stocks - Metals to outshine post multi-year breakout... - ICICI Direct

Company Update - Sundaram Finance - ICICI Direct

Indian pharmaceutical industry to meet an ambition of US$130 billion by 2030 through innovation-led growth: EY-FICCI report

4th Industrial Conclave - Bullish undertone, favourable valuation - HDFC Securities

Sanofi India - Weak quarter; sequential improvement - ICICI Securities

Sunteck Realty - All eyes on upcoming launches - ICICI Securities

Company Update - Tata Motors - ICICI Direct

Q4CY20 Company Update - Mahindra CIE Automotive - ICICI Direct

Event Update - Hindalco - ICICI Direct

EY report launch at BioAsia 2021 - Moving the needle: Healthcare industry in a post-COVID world

Initiating Coverage - Dalmia Bharat Ltd - HDFC Securities Retail Research Desk



Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020