MphasiS Ltd. share price target

Weak Q4 revenue print (-4.1% QoQ); DR and DXC remained a drag on growth

Mphasis posted weak revenue print, yet maintained its margins. FY23 growth of 9.7% in cc terms was impacted by 4% from a decline in Digital Risk and 1.6% from a decline in DXC business. The increase in deal pipeline by 35% YoY including higher growth in non-BFSI deal pipeline is a sign of portfolio diversification and/or relative stress in BFSI (60% of revenue).

Mphasis has reported a revenue decline of -4.5% QoQ CC and -4.1% QoQ US$, much lower than our and consensus estimates (vs ISEC: -0.5% QoQ US$, BBG cons: -0.3% QoQ US$) in Q4FY23. Direct revenue growth declined 3.4% QoQ CC and DXC declined 24.8% QoQ CC.

We find Mphasis much better placed compared to peers with a handle on its operating parameters and a risk reward that is tilted favourably (since MPHL is available at relatively cheaper valuations compared to peers).cheaper valuations compared to peers).

Before the breakout of the Covid-19 pandemic, Mphasis had underperformed its IT midcap peers by a margin because of volatility in DXC revenue stream. However, with Covid-19 breakout, there have been some changes in how business were operating.

Mphasis’ revenue of US$440.3mn (up by a modest 1.8% QoQ CC) was lower than our estimate of 3% QoQ CC).