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* Broad-based success in ramping up top clients: Mphasis remains unique in its ability to scale up revenue from the top clients as compared to peers. The company boasts of three USD 150mn+ p.a. clients with four of the top 5 clients each being a USD 100mn+ p.a. revenue account as compared to similar sized peers like LTI (1USD 100mn+ account for several years) and MTCL (has derived significant success with scaling up the top client to USD 350mn+ in revenue, but that remains its lone USD 50mn+ client). This has also led to the top 10 client concentration increasing over time (60% of revenues in 1QFY23). This broad-based success across top clients has resulted from consistent market share gains and account-based GTM strategy unlike the vertical/Horizontal based GTM followed by peers. The account-based GTM results in improved agility and has aided success at several top BFS accounts (large tech spending with significant outlay on digital transformation).

*  EBIT margin in a narrow range through FY20-22; ‘stable to improving’ trend ahead: Unlike peers that saw benefits of Covid-led savings in the initial period after 4QFY20 and are now facing reversals on that front, Mphasis’s EBIT margin stayed in the 15-16% range as the company decided to reinvest in the business. While resumption of travel /facility expenses are likely to be near-term headwinds for Mphasis as well, we are more confident in Mphasis’s ability to defend and improve margins aided by the improving revenue mix (read: higher share of offshore Applications business, optimisation on utilisation) and benefits of pricing leverage

*  Valuations still at slight discount to peers; maintain BUY: Mphasis still trades at a discount to its Tier II peers despite the unique success it has exhibited in scaling up large client accounts and aims to replicate that outside of the BFS vertical through a mix of NCA and mining efforts. We remain confident of growth remaining on par with peers, and given the likely ‘stable to improving’ margins trajectory we retain BUY. Mphasis along with PSYS remains amongst our top picks in the Tier II coverage.

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