Mphasis' revenue growth in Q4FY22 was in-line at 4.8% QoQ in reported terms and 4.3% QoQ in CC terms. Direct core business continued its steady growth and was up 4.4% QoQ, 37% YoY. DXC stabilised to a small extent with +0.8% QoQ growth (average: 15.3% QoQ decline in last 4 quarters). DXC now accounts for 5% of total revenues. For FY22, direct core grew at a strong 34.4% YoY CC. In an environment where large deal pipelines for peers have dried up, Mphasis winning 12 large deals (5 in Q4FY22 alone) is very impressive. TCV for FY22 was at US$1.4bn, +29% YoY. EBIT margin came in at 15.2%, +10bps QoQ (I-Sec: 15%). Company defended its margins despite impact from RSU (-120bps) and M&A (-70bps) costs.
Management mentioned rising interest rates and uncertain geopolitics have entered client conversations and short-term impact of the same can be expected. However, they believe Mphasis is well poised to achieve robust growth on the back of continuing market share gains, ongoing addressable market expansion, strength of the pipeline and track record in conversion of pipeline. Management guided for market-leading growth trajectory in direct core business while maintaining its EBIT margin guidance of 15.5-17% (post absorption of M&A costs) for FY23. Though the company has been consistent in maintaining margins (15-16% over FY17-21), we expect margins to be near the lower end of the margin guidance in FY23 factoring for higher manpower costs, investments for growth and return of travel and facility costs. We build-in revenue growth of 20.2%/14.7% in reported terms along with EBIT margins of 15.5%/16.1% for FY23E/FY24E.
Mphasis currently trades at 31x/25x on FY23E/FY24E EPS of Rs93/115. Our estimates remain largely unchanged. We maintain our BUY rating on the stock assigning a multiple of 32x on FY24E EPS to arrive at a target price of Rs3,672. We believe the risk-reward is favourable.
Shares of MphasiS Limited was last trading in BSE at Rs. 2740.90 as compared to the previous close of Rs. 2842.20. The total number of shares traded during the day was 13566 in over 1268 trades.
The stock hit an intraday high of Rs. 2823.60 and intraday low of 2732.50. The net turnover during the day was Rs. 37470128.00.