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Buy Mphasis Ltd For Target Rs. 2030

Open offer post change of hands…

Blackstone Capital Partners VIII and Blackstone Capital Partners Asia funds (BCP VIII and BCP Asia) has entered into an agreement to buy up to ~10.4 crore equity shares (55.3%) of Mphasis from Blackstone Capital Partners VI fund (BCP VI) for ~ | 15216.8 crore. The acquirer is not a part of the seller’s promoter group.

Further, a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA), University of California Investments and other long-term investors will co-invest along with Blackstone. This transaction has triggered an open offer by the acquirer. The acquirer has announced an open offer for acquisition of up to ~4.92 crore shares at | 1677/share amounting to ~ 8,261 crore shares. We believe the stock has long term potential and, hence, maintain BUY on the stock.

Valuation & Outlook

We believe that since the transaction is between two Blackstone funds, it will ensure business continuity, at least for the next few years. In addition, the company will benefit from traction in the Blackstone portfolio (overall opportunity of US$1.5 billion). Further, we believe Mphasis can benefit from cross selling to companies of new investors [Abu Dhabi Investment Authority (ADIA) and University of California Investments].

This, coupled with less exposure to impacted verticals, capability to mine clients effectively, market share gains via vendor consolidation, low legacy exposure and healthy margins prompt us to be positive on the stock. Hence, we maintain our BUY rating on the stock with a target price of | 2030 (22x PE on FY23E EPS) (earlier target price | 1,830).

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