Maintain Buy on MphasiS Ltd - Pricing Bottomed Out; Strong Volumes - PINC Result Review

PRICING BOTTOMED OUT; STRONG VOLUMES

Mphasis reported Q4FY10 with 7.5%QoQ USD revenue growth which was in line with most of its peers.

* Adequate volume growth and stable pricing
* APO outperforms, ITO disappoints on margins
* Robust growth in APAC; large client win in telecom

Outlook – Pricing re-negotiation, strong hiring and higher volumes from non HP business – Mphasis is expected to renegotiate prices with HP in various segments, which would enhance growth in FY11. The company has 1,600 and 800 open positions in the APO and ITO segment. Volumes from non-HP business are expected to improve on new client wins. MphasiS has performed well during this fiscal despite price cuts in the HP-driven business. We expect volume-led growth ahead of peers within the mid-cap space. MphasiS also has better operating margins and higher return ratios compared with peers.

The stock is trading at 10.8x FY12E EPS. We maintain 'BUY' recommendation with target price of Rs780 based on 14xFY12E.

Source : Equity Bulls

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