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Analyst Research Report Snapshot


MphasiS Ltd. (MPHL) - Visit Note - Dated - October 29, 2013




Axis Capital Limited


29 Oct 2013





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Key takeaways from our meeting with MphasiS CFO Ganesh Murthy:  MphasiS is likely to see a muted performance in Q4 (year-end Oct.) as one of its clients (GM) has ramped down its projects due to cost cutting measures. This is likely to impact revenue by 1% during the quarter  Top client HP (41% of revenue) continues to witness pressure and is likely to decline by 4-5% QoQ in volumes. Overall outlook for HP account has deteriorated; management expects 20-25% YoY decline in volumes (vs. 15% YoY decline earlier) as HP continues to lose market share  Digital Risk (DR) acquisition has achieved annual run rate of USD 180 mn. Margin profile has been improving steadily and now stands at 11% (vs. 10% in Q3) We expect MphasiS’ revenue to remain under pressure owing to bleak outlook in HP business which is expected to decline by 20-25% YoY in FY14. Thus, our revised USD revenue growth estimates for FY13/ FY14 are nil/ 4% (vs. earlier 1%/ 8%). We reduce our EPS estimates to Rs 36/ 40 for FY14/ FY15 (vs. Rs. 42/ 50 earlier). Our revised TP stands at Rs 418 (9x FY14E core EPS + Rs 85 cash/ share) implying a downside of 2% from CMP. Downgrade to HOLD. At the CMP of Rs 425, the stock trades at 12x/ 11x FY14E/ FY15E EPS of Rs 36/ 40 respectively. Other highlights  MphasiS has been hiring key personnel to driven its direct channel business with recent additions being a senior sales personnel in BPO and Infrastructure services and setting up of a dedicated team to pursue large deals. These investments have been yielding results as the company is getting invited to bid for large deals. MphasiS is currently bidding for two large deals, one each in the Banking-capital markets and insurance vertical  Management is confident of maintaining EBIT margin at 15-16% as it will be taking adequate measures to improve the margin profile in low margin accounts or exit them entirely  HP has been witnessing pressure as it continues to lose market share and has been unsuccessful in renewing deals Regards, Priya Rohira (Executive Director – IT & Telecom) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1104 Vishal Desai (AVP – IT) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1119

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