14 May 2020
4QFY20 Results Update | Sector: Technology
Mphasis
Neutral
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financials & Valuations (INR b)
Y/E Mar
2020 2021E
Sales
88.4
90.7
EBIT
14.2
13.2
PAT
11.8
10.6
EPS (INR)
61.5
56.4
EPS Gr. (%)
9.6
-8.2
BV/Sh. (INR)
312.6
346.5
Ratios
RoE (%)
21.4
17.6
RoCE (%)
18.3
14.7
Payout (%)
56.9
53.2
Valuations
P/E (x)
13.1
14.2
P/BV (x)
2.6
2.3
EV/EBITDA (x)
8.4
8.2
Div Yield (%)
4.4
3.7
MPHL IN
193
149.9 / 2
1015 / 612
18/13/0
226
CMP: INR804
TP: INR 860 (+7%)
Decent performance; Soft outlook!
Direct international drives growth, deal wins healthy
2022E
99.2
15.4
In-line revenue; Better than expected margins
12.4
In 4QFY20, Revenue (USD) / EBIT (INR)/PAT increased by 10%/20%/33% YoY
65.9
respectively vs our estimates of 11%/14%/11% YoY.
16.9
Revenue grew 1.5% QoQ (CC, v/s est. ~2.3%). Growth was driven by Direct
380.7
19.4
16.7
60.7
12.2
2.1
6.6
5.0
Deal wins (USD 201mn) during the quarter were healthy, 12% above the 4
quarter rolling average. 4QFY20 revenue growth at 1.5% (QoQ, CC) was
marginally behind our estimates, as weakness in DXC channel overshadowed
the healthy performance in Direct. Near term outlook remained soft as
clients reprioritize/defer some IT spends. Despite that, healthy order book,
high exposure to relatively stable verticals, and new client additions, should
help MPHL navigate these challenges.
We upgrade our FY21/22E EPS by ~8%/6%, largely driven by (a) adjustments
to our exchange rate assumptions and (b) EBIT Margin estimates (over FY21-
22E). Maintain
Neutral.
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Mar-20 Dec-19 Mar-19
56.2
52.2
52.3
14.2
13.9
8.0
23.9
28.5
29.7
5.8
5.4
10.0
International (2.7% QoQ, CC) while DXC revenue declined (1.0% QoQ, CC).
Amongst verticals, growth was broad based with all verticals growing 1-2%
except for IT/Comm/Entertainment which declined by 3.7%.
Geography wise, Americas declined 1% QoQ while growth in Europe / RoW
grew strong at 8%/9%. This was despite Americas facing COVID headwinds
later than the other two geographies.
Revenue from the Top client declined ~6.6% QoQ. Top 2-5 clients’ segment
reported strong growth of ~3.6% QoQ.
EBIT margin expanded 10bp QoQ to 16.3%. Increase in share of fixed price
projects, cost optimization and favorable currency were the key tailwinds.
4Q witnessed the strongest order booking over past 6 quarters with deal
wins of USD201m in Direct channel; Of this, 79% were in new generation.
Given the uncertainty in the environment, management hinted at a soft
outlook on revenue growth. However, the company is confident of
maintaining its margins by using levers such as – increase in share of Fixed
Price Projects, fresher hiring, pyramid rationalization, automation and
reduced travel costs etc.
So far, there were no major demand dislocations. However, the company
indicated that clients are re-prioritizing/deferring some IT spends.
With supply issues in play, ramp-ups in April had been very tough but
management is confident that the supply situation will stabilize.
In the case of DXC, MPHL doesn’t foresee any force majeure event as of
now. MRC of USD300mn is still due.
Direct Core segment has been the growth driver and has seen strong deal
wins, new clients additions.
In terms of capital allocation, MPHL will maintain its 55-57% payout policy.
Key highlights from management commentary
FII Includes depository receipts
Sudheer Guntupalli – Research analyst
(Sudheer.Guntupalli@MotilalOswal.com); +91 22 6129 1530
Research analyst: Mohit Sharma
(Mohit.Sharma@MotilalOswal.com); +91226129 1531/
Heenal Gada
Heenal.Gada@MotilalOswal.com); +91225036 2654
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.