Event update: Mphasis (Outperformer); Analyst meet takeaways – Focus on execution
We visited Mphasis Analyst Meet & key highlights of meet are:-
Strategy to focus on digital: The company’s new strategy will focus on expanding in European geography, proactive sales, focus on Blackstone portfolio execution and expand HP relationship in new geographies and entities. Overall the company is focussed on executing on 4 growth engines 1) Strategic accounts, 2) HP/DXC channel , 3) Blackstone portfolio and 4) new client additions. MPHL focus on increasing the NewGen revenues comes at better pricing vs. traditional business.
Investments in Europe: Europe is a focus geography and the company has restructured regional leadership with increased focus on new client acquisition. This along with collectively positioning in next gen services and revamped 3rd party advisor strategy is driving growth.
Blackstone channel execution has been good: MPHL has executed well on the Blackstone portfolio with TCV wins over US$158m in FY18. MPHL value proposition is to offer cost reduction and/or business transformation to the portfolio companies.
Drivers for margin execution: Mphasis has improved EBIT margins from 13 to 16% over the past 3 years helped by recovery in growth in FY18. MPHL remains confident of 15-17% margin band led by proper customer segmentation, pyramid optimization, increase share of fixed price projects, increase in new gen revenues.
Valuation & View
MPHL has managed the transition well with good execution on both growth, deal wins and margins in FY18. We do think that with USD1bn in size, and some large client relationships (own+Blackstone) there is potential for the company to mine more. We expect the USD revenue growth to be better than industry (11% CAGR FY19-20E). Valuations in the IT mid-cap space are not cheap and MPHL is trading at 17x FY20E. We like the micro growth story of Blackstone portfolio and HP/DXC & expect continued earnings momentum given strong focus on execution and deal pipeline. Outperformer with target price to Rs1060 (18x FY20E EPS).
Mphasis Limited is a information technology solution provider in cloud and cognitive services. The Company's segments include Banking and Capital Market, Insurance, Information Technology, Communication and Entertainment and Emerging Industries. The geographical segments include United States of America, India, Asia Pacific and Europe, Middle East and Africa. It offers cloud computing, cognitive solutions, digital services, securing businesses, application services and infrastructure services. The Company serves various industries such as banking and capital market which includes, retail banking, credit cards and payments, wealth management and brokerage, corporate banking solutions and investment banking technology. Its insurance industry includes, property and casualty, life and retirement and health. Its other industries consist of communications, energy and utilities, healthcare, life science, logistics, manufacturing and travel and transportation.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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