Q3FY18 result highlights
Key positives: HP portfolio growth; deal closure
Key negatives: No gross margin expansion despite increase in bill rates
Impact on financials: FY18E/19E/FY20E EPS up by 3.5%/4.3%/5.6%.
Valuations & view
Strong quarter from Mphasis with continued outperformance in HP business. Moreover, strong deal closure yet again during the quarter improves revenue visibility further. We expect the USD revenue growth in high-single digit (9% CAGR FY19-20E). Revenue beat and raise in our EBIT margin assumption by 20-30bps for FY19-FY20 leads us to upgrade our EPS for FY19/FY20 by 4.3%/5.6%. We like the micro growth story of Blackstone portfolio and HP/DXC, but post the recent share price run up we see limited upside to re-rating (17x P/E FY19E). Retain Neutral, with revised target price of Rs790 (14.5x FY20E EPS) from Rs750.
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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