RESULTS REVIEW 4QFY18 14 MAY 2018 Mphasis BUY HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters Strong show continues Mphasis posted a strong quarter with continuity in robust HP-DXC-channel performance. Revenue came at USD 270mn, 5.0/19.5% QoQ/YoY. Growth was led by HP-DXC-channel (27% of rev) at 8.3% QoQ (20.6% YoY in FY18). Direct core (53.1% of rev) grew 2.8% QoQ (11.6% YoY in FY18). EBIT% came at 16.8%, +130bps QoQ. APAT stood at Rs 2.51bn, 29.6% YoY. Factored 14.1% CAGR over FY18-20E for HP-DXC channel supported by (1) Strategic partnership with DXC, (2) Investments in S&M (geo expansion) and (3) Cloud migration with AD & IMS-driven growth. Factored 12.9% CAGR for Direct Core driven by (1) Blackstone opportunity (USD 158mn TCV in FY18 and 29% of total Direct International wins) and large addressability, (2) High share of digital (43% of direct core), (3) Strong TCV wins (USD 551mn and 51% YoY in FY18) and (4) Expansion of European footprint. Revise earnings higher by 2/5% for FY19/20E and expect revenue/EPS growth at 11.4/16.1% CAGR over FY18-20E. Factored USD rev growth at 11.9/10.8% and EBIT% at 15.5/16.6% for FY19/20E, respectively. Direct core growth est. at 2.8/3.1% CQGR and DXC growth at 2.5/2.7% CQGR for FY19-20E. Maintain BUY with TP of Rs 1,060, 18x FY20E. Valuation supported by margin resilience within midcap IT and improving cash generation (87% FCF/PAT). Highlights of the quarter/ Analyst Meet (1) Management guided to above industry growth for direct core, at/above industry growth for DXC and increased EBIT% guidance to 15 to 17% (14 to 16% earlier). (2) S&M strategy alignment of DXC with Direct Core supplementing growth in new logos in new geographies within DXC channel. (3) FY18 deal wins supplemented by increase size of deals. (4) Mphasis has re-structured its European leadership in 3Q and revamped its tech advisory strategy. Near-term outlook: Strong deal wins to support 1H growth seasonality. Financial Summary YE March (Rs bn) 4QFY18 4QFY17 YoY (%) 3QFY18 QoQ (%) FY16 FY17 FY18 FY19E FY20E Net Sales 17.45 15.06 15.8 16.61 5.0 60.85 60.76 65.46 73.86 81.86 EBITDA 3.10 2.38 29.9 2.74 12.9 9.03 9.69 10.63 12.40 14.62 APAT 2.51 1.94 29.6 2.10 19.4 6.87 8.07 8.51 9.73 11.40 Diluted EPS (Rs) 13.0 9.2 41.0 10.9 19.3 34.0 38.8 43.8 50.3 59.0 P/E (x) 29.0 25.5 22.6 19.6 16.7 EV / EBITDA (x) 18.1 16.5 15.9 13.4 11.0 RoE (%) 12.1 13.4 14.6 17.0 18.3 Source: Company, HDFC sec Inst Research # Consolidated INDUSTRY IT CMP (as on 11 May 2018) Rs 988 Target Price Rs 1,060 Nifty 10,807 Sensex 35,536 KEY STOCK DATA Bloomberg MPHL IN No. of Shares (mn) 193 MCap (Rs bn) / ($ mn) 191/2,839 6m avg traded value (Rs mn) 269 STOCK PERFORMANCE (%) 52 Week high / low Rs 1,124/526 3M 6M 12M Absolute (%) 10.1 34.7 72.1 Relative (%) 5.6 28.0 54.6 SHAREHOLDING PATTERN (%) Promoters 60.38 FIs & Local MFs 12.46 FPIs 22.79 Public & Others 4.37 Source : BSE Apurva Prasad [email protected]+91-22-6171-7327 Amit Chandra [email protected]+91-22-6171-7345
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RESULTS REVIEW 4QFY18 14 MAY 2018
Mphasis BUY
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Strong show continues Mphasis posted a strong quarter with continuity in robust HP-DXC-channel performance. Revenue came at USD 270mn, 5.0/19.5% QoQ/YoY. Growth was led by HP-DXC-channel (27% of rev) at 8.3% QoQ (20.6% YoY in FY18). Direct core (53.1% of rev) grew 2.8% QoQ (11.6% YoY in FY18). EBIT% came at 16.8%, +130bps QoQ. APAT stood at Rs 2.51bn, 29.6% YoY.
Factored 14.1% CAGR over FY18-20E for HP-DXC channel supported by (1) Strategic partnership with DXC, (2) Investments in S&M (geo expansion) and (3) Cloud migration with AD & IMS-driven growth. Factored 12.9% CAGR for Direct Core driven by (1) Blackstone opportunity (USD 158mn TCV in FY18 and 29% of total Direct International wins) and large addressability, (2) High share of digital (43% of direct core), (3) Strong TCV wins (USD 551mn and 51% YoY in FY18) and (4) Expansion of European footprint. Revise earnings higher by 2/5% for FY19/20E and expect revenue/EPS growth at
11.4/16.1% CAGR over FY18-20E. Factored USD rev growth at 11.9/10.8% and EBIT% at 15.5/16.6% for FY19/20E, respectively. Direct core growth est. at 2.8/3.1% CQGR and DXC growth at 2.5/2.7% CQGR for FY19-20E. Maintain BUY with TP of Rs 1,060, 18x FY20E. Valuation supported by margin resilience within midcap IT and improving cash generation (87% FCF/PAT).
Highlights of the quarter/ Analyst Meet (1) Management guided to above industry growth for
direct core, at/above industry growth for DXC and increased EBIT% guidance to 15 to 17% (14 to 16% earlier). (2) S&M strategy alignment of DXC with Direct Core supplementing growth in new logos in new geographies within DXC channel. (3) FY18 deal wins supplemented by increase size of deals. (4) Mphasis has re-structured its European leadership in 3Q and revamped its tech advisory strategy.
Near-term outlook: Strong deal wins to support 1H growth seasonality.
Revenue came at USD 270mn, 4.4% QoQ CC supported by DXC growth at 8.3% QoQ CC and Direct Core growth at 2.1% QoQ CC One-time revenue impact of Rs 129mn in India business EBIT% stood at 16.8%, +130bps QoQ supported by increase in FP contract
Among geographies, EMEA led the growth at 18% QoQ TCV of USD 158mn in FY18 from Blackstone channel to support growth in Direct Core Total TCV of USD 551mn in Direct International in FY18 (USD 116mn TCV in 4QFY18) 83% of FY18 TCV in Digital, Nex-gen GRC including 86% of 4Q TCV
Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
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