MOSL: MPHASIS (Neutral)-Strong performance in core segments dragged by Digital Risk
Mphasis: Strong performance in core segments dragged by Digital Risk
(MPHL IN, Mkt Cap USD2.5b, CMP INR920, TP INR1050, 14% Upside, Neutral)
- 3Q Operational performance in line: MPHL's 3QFY19 USD revenue grew 12% YoY (2.6% QoQ) to USD283m, in line with estimate. EBITDA grew 21% YoY to INR3,306m (estimate of 26% growth) and PAT grew 29% YoY to INR2,709m (estimate of 16% growth). EBITDA margin declined 60bp QoQ to 16.8%, below our estimate of 17.2%, primarily due to lower margins in BFS business and on sharp decline in Digital Risk revenues. PAT beat was led by marginal forex gains v/s our estimate of INR390m loss.
- Core businesses strong: Direct core channel (5.9% QoQ CC, 27.6% YoY CC) and DXC channel (6.4% QoQ CC and 28.3% YoY CC) continued their strong momentum; but it was dragged by Digital Risk with revenues of USD22m, significantly below the company's anticipated stable-state base of USD28-30m. This was due to spill-over of some deals to 4Q, and generally weakening environment of mortgage originations amid the current interest rate scenario in the US. Cash generation from operating business remained healthy, with cash balance at USD262m, after the completion of Buyback and acquisition of Stelligent.
- Outlook on core engines intact: The Blackstone portfolio is a major contributor to the direct core business for MPHL, and it should grow to 5% of business by end-FY19. MPHL also brushed aside any concerns from DXC's comments on the intent to cut sub-contractors and expand margins substantially. MPHL cited that it remains <10% of DXC's outsourcing portfolio, and its share of wallet continues to grow within the account.
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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