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Research
Kotak Maintains Reduce Mphasis with a price target of Rs.390
Posted On : 2012-08-31 21:08:47( TIMEZONE : IST )
We recommend selling at each incline. A buyback at significantly higher price or de-listing, if any, are the risks to our call.
- Mphasis' 3QFY12 results were below expectations. Volumes were down 0.8% QoQ and were significantly below our expectations. HP-ES revenues continued to de-grow (7% fall QoQ fall in volumes) and are expected to remain impacted, we understand.
- HP is looking at various options at the time of HP-ES contract renewals, according to the management. The company will enter negotiations with HP in 4Q and there may be surprises, though the company has indicated its resolve to sustain billing rates. We believe that, the company may not be able to achieve the FY12 guidance for HP - non ES revenues ($55 - 60mn). The management had reduced the guidance for non-ES business from HP to about $60mn from $100mn three quarters back and from $75-80mn in 1Q.
- HP-non ES and direct revenues reported good growth of 7% and 6% respectively. Non-HP channel business added 20 clients in 3Q. EBIDTA margins (excluding hedging impact) were up by about 150bps, largely due to rupee depreciation. Employee strength has once again fallen in IT services and IT businesses, likely reflecting the limited revenue visibility.
- For FY12E, we expect earnings to come down on a YoY basis to Rs.38 per share, due to the uncertain macro and the uncertainties within HP. FY11 also contained several reversals of provisions (nearly Rs.1.12bn) and onetime revenues of Rs.665mn, which we do not expect to recur in FY12. For FY13E, we expect earnings to grow marginally to Rs.39.6 per share. Our PT stands changed to Rs.390 based on FY13E earnings (Rs.372 based on FY12E). Our DCF based price target leads us to a target FY13E PE of 10x. We maintain REDUCE. A potential buy-back offer / de-listing from HP can provide upsides to the stock.
- Delayed recovery of developed economies and a sharp rupee appreciation are key downside risks to our estimates.
We maintain REDUCE
recommendation on Mphasis with a price target of Rs.390.
