Neutral on Mphasis - Disappointing Q1 numbers - Motilal Oswal

Mphasis (MPHL IN; Mkt Cap USD2.1b, CMP Rs448, Neutral)

Revenue declined 8.3% QoQ to US$271m, driven by: [a] seasonality, [b] pricing cuts, [c] base effect, and [d] exchange rate fluctuation (-0.7%).

Revenue declined sequentially in the direct channel as well, despite the company's focus and investments in this segment. This was a key negative.

On a like-to-like basis, EBITDA margin declined 430bp QoQ to 16.2%. While utilization remains a key lever, we expect margins to remain range-bound

HPES has been a sluggish segment for Mphasis over the past few quarters. Recognizing this, the company is focusing on growing its direct channel.

Disappointing 1QFY11 numbers against all estimates and on all fronts, compounded by growing investor concerns over corporate governance (change in disclosures and discontinuance of reporting segment-wise pricing metrics) weighed heavily on the stock. Modeling the prevailing concerns, we have significantly cut down our EPS estimates by 25% to Rs40 for FY11 and by 20.5% to Rs47.7 for FY12. Our revised target price is Rs524. Maintain Neutral.

Source : Equity Bulls

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