IGI Logo

Growth to recover in FY25 | Valuation remains full

Driving incremental efforts to stimulate growth engines We hosted Mr. Nitin Rakesh (MD & CEO – Mphasis) at our flagship conference, AGIC – 2023. Through his presentation, he touched upon the implications of Generative AI (subset of LLM) on business operations and the cannibalization impact it may pose to the technology service lines. Moreover, we also attended Mphasis (MPHL)’s Analyst Meet recently. The key takeaways from the meet are:

* MPHL is driving incremental growth by doubling-down on its vertical- and horizontal-focused strategies, while constantly mining & onboarding potential clients through the new client acquisition (NCA) engine. * The company has made a few strategic investments to facilitate its deep vertical presence and participate more into the customer-centric solutions, instead of delivering commoditized services.

* Moreover, BFS remains a key focused vertical and it continues to scale up through wallet share gains; while it draws attention to non-BFS units and de-risks bankingheavy portfolio.

* However, Mphasis’ current valuation of 22x FY25E EPS fairly factors in the recovery in earnings growth next year. Reiterate Neutral with a TP of INR2,250 (premised on 21x FY25E EPS).

Customer-centric strategy drives positive outcome

* MPHL is focused on augmenting customer stickiness to have a complete ownership of the business solutions and participate in the account planning process, instead of just delivering project-based solutions through RFPs.

* The company believes that it has built robust account mining and scaling teams (Tribes and Squads) that participate in cross-functional activities. Further, the strong GTM strategy is augmenting these teams, and shortening the sales cycle by deeper mining and large deal origination activities.

* The NCA strategy is progressing very well and the company has been successful in onboarding strategic logos (potential to scale) and acquiring large deals. Revenue originating through the NCA route has posted a CAGR of 49% over FY19-23.

* The strategic projects are working in favor of MPHL and are creating a referral point for existing as well as new accounts. With that the company gets to participate in a series of Workshops and POCs before a potential referee becomes an active client.

BFS continues to be the key focused vertical

* BFS continues to be an anchor vertical for MPHL (Exhibit 1). However, there are several accounts that are not mature and can be scaled to a full potential. With matured BFS vertical, the company is exploring other emerging markets and seeking referral points through the top-10 banking accounts.

* BFS is a key vertical (~50%) and has driven a major part of the offshoring. Moreover, it remains client-centric to participate in growth vs optimization initiative, which is likely to drive offshoring further.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer