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Centrum Broking
Mphasis (Buy)
CMP: ₹970.55
Target: ₹1,040
We met Mphasis CFO Suryanarayanan to get a business update. Management cited that new client wins remained steady and quality of new accounts wins are also strong with potential to scale over next few years. For FY19, revenues from new account wins grew by 91 per cent y-o-y albeit on a smaller base.
Management cited that high BFSI concentration concern is misplaced as it is well diversified within the portfolio. While Direct core accounts for 68 per cent of Mphasis total revenues. Within this BFS/diversified financial services/ insurance contribute to 35/18/16 per cent of total Direct core revenues, respectively. The remaining 31 per cent of revenues in Direct core business is from other verticals such as travel, logistics, healthcare, etc.
Mphasis continues to gain share in DXC from third party subcontractors (onsite staffing companies). We expect Mphasis consolidated dollar revenue growth assumptions to 11/12.4 per cent for FY20/FY21E. Stock trades at 14.4x FY21E EPS at 16 per cent discount to LTI. Net cash on balance sheet stands at ₹1,700 crore (₹92/share which is 9.5 per cent of stock price). Company has a steady payout track record. With strong free cash flow of ₹1,000 crore in FY20E (including interest income), we see scope for Mphasis announcing a buyback in January 2020. Retain BUY.
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