Buy MphasiS - PINC Result Review

ITO OUTPERFORMS; PRICING IN APO DISAPPOINTS

MphasiS reported a strong Q3FY10 led by volume growth of 7.3%QoQ and 12.4%QoQ in the application and ITO segment respectively.

- Volume driven revenue growth, pricing in APO adds pressure
- Consistent outperformance in ITO, price cuts in the Application segment
- US geography and BFSI vertical outperform

Outlook – stable billing and strong hiring potential: The billing rates are expected to remain stable at current levels across the segments for the next quarter. We believe that billing rates in the application segment have bottomed out however, ITO may dip marginally in FY11 as the one time revenue of Rs10cr for ITO has already been taken into account this quarter. MphasiS has 2000 and 700 open positions in the applications and ITO segment respectively. It is striving to achieve higher growth from non HP channel which currently contributes 28% of the overall revenues.

We have revised our estimates marginally upwards for FY10 and FY11 on the back of higher volume growth and lower tax rates. We maintain our 'BUY' recommendation on the stock with a price target of Rs780 on the basis of 14x FY11 earnings.

Source : Equity Bulls

Keywords