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Result Synopsis

Mphasis (MPHL) reported mixed financial performance for the quarter. The sequential revenue growth for the quarter was below estimates; while EBIT margin was inline with expectation. It reported constant currency growth of (4.5)% QoQ, led by Direct
segment(down 3.4% QoQ in cc terms). The INR reported growth was (4.1)% QoQ. Direct now contributes 94.6% to revenue; while DXC contribution has fallen to just 3.8% of revenue. EBIT margin was flat at 15.3% and it was able to maintain it within guided
ranged. Employee attrition continues to moderate for the company.

The long term demand environment remains robust led by adoption of cloud and data analytics across enterprises. However, the clients especially in select sectors remain cautious regarding the evolving macroeconomic situation and it is leading to more time in decision making especially with regard to large deals. It is well placed to achieve EBIT margin guidance of 15.25%-16.25% for FY24. Employee attrition is expected to further come down going ahead and it should support operating margin going ahead. We estimate revenue CAGR of 11.0% over FY23?25E with average EBIT margin of 15.8%. We maintain our ADD rating on the stock with revised target price of Rs 2,144/share at 19x on FY24E EPS. The stock trades at PER of 18.3x/16.1x on FY23E/FY24E EPS.

Result Highlights

* Reported revenue of Rs 33.6bn (down 4.1% QoQ in INR terms). Revenue declined by 4.5% QoQ in cc terms. Direct segment (94.6% of revenue) declined by 3.4% QoQ in cc terms; while DXC (3.8% of revenue) declined by 24.8% QoQ in cc terms.
The sequential performance was led by Logistics & Transportation segment that grew 0.6% QoQ.
* EBIT margin was flat QoQ at 15.3% led by continued focus on optimisation of operating costs.
* Reported net new TCV wins of $309mn in the Direct segment. (Vs $410mn in Q3FY23).
* Offshore revenue mix grew 170 bps QoQ to 46.5%.
* Total headcount was down 1,408 QoQ to 34,042 employees. Offshore utilization including trainees improved by 5pp to 75%.
* Cash and Equivalents of Rs 28.1 bn vs Rs 25.2bn (Q3FY23).
* DSO increased by 3 days QoQ to 71 days.

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