Add Mphasis Ltd For Target Rs. 2,850 - Yes Securities
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Our view
It showed strong performance in the quarter with revenue above estimate and EBIT margin along the expectation. Direct segment continues to power the revenue growth as deal booking remains strong and offers strong revenue growth visibility. The contribution from DXC segment would continue to decline and expected to settle at mid to high single digit revenue contribution. Margin pressure likely to increase with higher attrition going ahead. The valuation remains stretched as it trades at PE of 28x on FY23 earnings. We maintain ADD Rating on the stock, with revised target price of Rs 2,850.
Result Highlights
* Reported revenue of Rs 26,008 mn ( up 6.6% QoQ), which was above estimate. The growth was led by Direct revenue which grew by 10.8% QoQ. On the other hand, DXC revenue declined by 17.7% QoQ and now forms 9% of revenue
* EBIT margin declined by 20 bps QoQ to 15.9% in line with estimates as wage hike impact was mitigated through reduction in SG&A.
* Robust deal booking as of $505 mn in the quarter ( up 92% YoY) with 85% of deal wins in new Generation services.
* Cash and Equivalents increased by Rs 4.6 bn to Rs 34.4 bn.
* Offshore revenue mix declined 200 bps QoQ to 41%.
* Won 6 clients in the quarter compared to 8 in Q4FY21
* DSO decreased by 2 days QoQ to 61 days.
* Total headcount increased by ~2k to 34,396.
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