Prabhudas Lilladher

Mphasis (Buy)

CMP: ₹958.4

Target: ₹1,042

We attended Mpahsis analyst meet where the management highlighted the key growth drivers in direct core & new growth areas in the DXC/HP Channel. Mpahsis management mentioned that speed, flexibility, domain expertise, scalability, solution architecting, strong eco system of alliance partners is helping them to drive sustainable growth. Mpahsis has developed core capabilities in sub-verticals especially in BFSI, where regardless of industry weakness in the segment management maintains its strong outlook for the same.

Mpahsis has been one of the few mid-tier IT company over the last few quarters which has not seen in downward revision on margins, growth visibility is stable & it has best cash generation among its peers & RoE in excess of 20 per cent. We expect Mpahsis to post 11/12 per cent growth in revenues for FY20E/21E & our EBIT margin estimates stands at about 16.6 per cent for FY20E/21E.

We believe recovery in digital business will be gradual while direct core business will be the key growth driver. Good growth in the core business and growing revenue contribution from the Blackstone portfolio provide visibility on growth. We have fine tune our estimates & value Mphasis at 15x FY21E earnings to arrive at revised target price of ₹1042. The stock currently trades at attractive valuation of 14.8/12.7x FY20E/FY21E earnings.

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