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About the stock: Mphasis Ltd (Mphasis) offers application services, BPO and infrastructure services, BFSI, technology, communication & logistic services.

* The company’s direct revenue increased 19.3% YoY on a reported basis and 12% in CC terms in FY23

* OCF, EBITDA of 75% and double digit return ratio (with RoCE of 20%)

Q4FY23 Results: Mphasis reported weak Q4FY23 results.

* In CC terms, direct revenue fell 3.4% QoQ and revenue declined 4.5% QoQ

* EBIT margins were flat at 15.3%

* Won TCV of US$309 mn with two large deals in Q4

What should investors do? Mphasis’ share price has grown by ~1.8x over the past five years (from ~| 1009 in May 2018 to ~| 1860 levels in May 2023).

* We maintain our HOLD rating on the stock

Target Price & Valuation: We value Mphasis at | 1950 i.e. 18x P/E on FY25E EPS.

Key triggers for future price performance:

* Strategy to mine top 10, 20 clients, adding high potential new logos, rise in deal sizes and expansion in Europe bode well for long term growth

* Further, the management stability, improving deal size, market share gains via vendor consolidation, low legacy exposure to drive 9.7% CAGR in revenues over FY23-25E

* Improving revenue trajectory, higher offshoring, utilisation & fresher deployment to boost EBIT margins (+80 bps to 16.1% in FY23-25E)

Alternate Stock Idea: Apart from Mphasis, in our IT coverage we like Infosys.

* Key beneficiary of improved digital demand, industry leading revenue growth and healthy capital allocation prompt us to be positive

* BUY with a target price of | 1,600

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