MOSL: MPHASIS (Neutral)-Above estimate, but lopsided-profitability beat led by SGA pruning and one-time settlement
Mphasis: Above estimate, but lopsided; profitability beat led by SGA pruning and one-time settlement
(MPHL IN, Mkt Cap USD2.7b, CMP INR822, TP INR800, 3% Downside, Neutral)
- Strong growth and deal wins: MPHL's revenue growth of 3.8% QoQ to USD252m was better than our estimate of USD246m. Both HP channel (+3.4% QoQ) and Direct Channel (+4.0% QoQ) contributed to growth. In 3Q, it reported deal wins TCV of USD130m, taking YTD wins to USD435m (+58% YoY). 83% of the deal wins in the quarter and year were in the focus areas of Digital, Next-gen services and GRC.
- But growth still lopsided: Keeping in line with recent trends, only IT/Communications/Entertainment vertical registered material traction (+58% YoY). Others remain between -9% and +4%. Growth in BFSI (47% of revenue) grew by 1.4% YoY in 9MFY18. Similarly, growth was again led by the Technical helpdesk service line, which has now grown ~3.5x over last year, and contributed 142% of incremental growth in 9MFY18.
- Beat on profitability: EBIT margin expanded 110bp to 15.5%. Adjusted for a one-time settlement, the expansion was 70bp QoQ (to 15.1%), still well ahead of our estimate of 13.6%. This was led by a cutback in SGA expenses by 100bp to 11.1%, which explained ~110bp of the beat. MPHL's S&M headcount declined 9% QoQ to 300 and G&A headcount declined 4% QoQ to 897. PAT at INR2.2b grew 8.8% QoQ.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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