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Dolat Capital
Target: ₹550
CMP: ₹375.30
MPS reported a slight beat on results in Q2, with a 34.9 per cent q-o-q growth in revenue (our estimates: 31.9 per cent q-o-q) largely led by inorganic contribution from acquired HighWire business while organic business segments remained in the ‘flat to slightly negative’ growth range.
OPM declined 360 bps q-o-q to 17 per cent (our estm: 15 per cent) due to decline in margins of all three business segments, wherein the platform business was impacted by lower EBITDA margin of acquired HighWire business (early double digit).
MPS expects Highwire business to deliver improved profitability (40-45 per cent EBITDA margins) by end of FY22 led by cost take-outs (IT, rent, other inefficiencies), limited incremental cost for revenue growth (cross sell leverage) and cost arbitrage opportunities by off-shoring.
Post HighWire integration, MPS would focus on revival of profitability across all business segments, that will drive overall earnings momentum which we believe is achievable given the past robust turnaround track record. Improved business visibility, strong margin revival potential and attractive valuations make strong investment case.
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