AnandRathi
Mphasis (Buy)
CMP: ₹848.1
Target: ₹1,000
After its takeover by Blackstone, Mphasis’ HP business (28 per cent of revenue, a 22 per cent CAGR over FY17-19) registered a classic turnaround, after having declined for four consecutive years.
Attractive valuation: The stock now quotes at 14x FY21e PE (9x EV/EBITDA), which we consider attractive given the strong execution capability and dividend payout. Our target is based on 15 x FY21e PE (10 x EV/EBITDA) plus 4 per cent dividend yield/4 per cent FCF yield.
Key risks: Mphasis lags its peers in client addition in larger buckets ($5-20 million+ category) as more of the addition is in sub $5 million+ bracket. With DXC going through significant troubles, there is a fear of slowdown from DXC channel (volumes or pricing).