Mphasis Ltd - Operating struggle continues, retain REDUCE - Emkay

Reco: REDUCE
CMP: Rs 402
Target Price: Rs 370

- Mphasis's Oct'13 results continue the streak of business struggle with revenues in HP business declining by 5.5% QoQ as Direct Channel revenues remain flat QoQ

- EBITDA margins declined by ~70 bps QoQ to 17.5% impacted adversely by ~50 bps decline in Gross margins despite significant Headcount cuts and currency depreciation

- Several margin headwinds ahead in the form of (1)Continuous decline in Headcount/unsustainably high utilization rates and (2) need to increase investments to drive growth in Direct Channel

- We cut our FYOct'14/Oct'15E EPS by 8/10% each to ~Rs 38/41. Inexpensive valuations need to be weighed in context of continuous business challenges. REDUCE, TP Rs 370.

Source : Equity Bulls

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