MphasiS Ltd - ENAM

Focus on client diversity increases: MphasiS' (MPHL) Q4 results showed muted growth in the HP biz (62% of rev) but witnessed a pick-up in its Direct biz segment (38% of rev; up ~19% QoQ). A ~25% QoQ growth in the non-ES part of HP biz indicates MPHL's efforts to capture growth outside of its traditional HP biz.

Volume growth driven largely by the ITO segment (~27% of rev; up ~10% QoQ) given Applications and BPO (61% & 12% of rev resp.) stayed flat. We have recently noted the parent's (HP) increasing focus on infra Mgmt Svcs and believe MPHL (~70% of ITO biz is HP driven) to benefit as a result.

MPHL continued its focus on margins and we believe levers such as utilization & replacement of sub-contractors with own employees would provide further upside to EBIT margin from the current level of ~14% (FY11).

Valuations: We have upgraded our FY12 revenue / EPS estimates by ~6% / 1% to Rs 56.4 bn / Rs 36 respectively, largely to incorporate INR depreciation. We revise our TP to Rs 370 (vs. Rs 355 earlier) based on 10x FY12E EPS. Maintain BUY with an upside of 16% from CMP of Rs 315. The stock currently trades at 8.6x FY12E earnings.

Our estimates are based on INR/USD of Rs 46.5 for FY12E adjusted for Oct year.

Source : Equity Bulls

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