Reduce Mphasis - Kotak

A buyback at significantly higher price or de-listing, if any, are the risks to our call.

Mphasis' 1QFY13 results were below expectations. Revenues were down by about 4%, largely on the back of HP business, which fell by 9% QoQ. HP non-ES revenues also de-grew by 10% QoQ, which was a surprise. Direct business also grew by only 1% QoQ, partly due to year-end shut-downs. We expect the scale down in HP business to continue impacting the overall growth of Mphasis. EBIDTA margins also disappointed with a 215bps fall.

The Digital Risk acquisition is not expected to have any significant impact on the financials of Mphasis. We have made changes to our FY13 estimates and have incorporated DR financials WEF 2QFY13. Our FY13E earnings stand at Rs.37 (Rs.40.3 earlier).

Our TP stands at Rs.387. We maintain REDUCE. A potential buy-back offer / de-listing from HP can provide upsides to the stock.

Source : Equity Bulls

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