Add Mphasis Ltd For Target Rs. 1,950 - Yes Securities
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Result Highlights
* Reported revenue growth of 1.8% QoQ (up 2% QoQ in constant currency), which was slightly less than consensus expectation. The revenue growth was led by 3.1% QoQ growth in Direct revenue. However, DXC revenue continued to decline (as has been the trend after the expiry of contract period) as it declined by 7.2% QoQ. In terms of segment, BFSI revenue declined by 4.3% QoQ in the quarter
* DXC contributed 12% to revenue in Q4; while Direct contributed 86% to revenue in the quarter.
* Offshore revenue mix improved by 100 bps QoQ to 43%, as per the industry trend during the Pandemic.
* EBITDA margin declined by 31 bps QoQ to 18.5%, led by higher other expenses.
* Deal win remained strong with net new TCV wins of $245 mn in Direct segment. This is 5th consecutive quarter of $200+ deal wins in Direct segment
* Excluding trainees, offshore employee utilization increased by 500 bps QoQ to 85%, which is expected to come down with higher hiring going ahead.
* PAT declined by 2.7% QoQ to Rs 3,169mn, on lower EBIT, lower other income and high tax rate.
* Declared final dividend of Rs 65/share (which included special dividend of Rs 27 per share) vs Rs 35 in FY20
* Cash and equivalents increased by Rs 3 bn to Rs 29.8 bn in the quarter
Our view:
Overall, the performance was strong in the direct business. However, The DXC segment continues to decline after the end of the contract period with DXC Technology and we expect its near‐term performance to be stable.
The strong deal booking in the Direct segment will help growth going ahead. We believe that Direct Core business is well placed to deliver industry leading growth in FY22, driven by solid capabilities in digital technologies. Trades at 21.8x on FY23 earnings. Initiate coverage with ADD rating on the stock
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