mphasis - moneycontrol.comimages.moneycontrol.com/.../mphasis-01072020-dolat.pdf · mphasis had an...

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Annual Report Analysis FY20 Strong client proximity to drive sustained financial outperformance Mphasis had an event full year as it tested the company’s ability to sustain the tough times (HP/DXC channel revenues grew just 7.7% dragging the overall traction; rest business grew 17%) and deliver growth by focusing on its core strategy of providing efficiency, reducing cost and fulfilling need of clients by bringing ‘T back to IT’ through cloud and cognitive technology, Dev opps, Cloud native app dev, legacy modernization, Enterprise Automation, Next gen data etc. Strong digital capabilities led to strong traction both in revenue growth (revenues up 14% in FY20) as well as order book (up 13% YoY in FY20 at US$715mn). Also, it has not initiated any specific cost curb measures and would follow its usual round-the-year performance based review system and would just deploy BAU levers to support profitability; which are indication of strong business traction. The company has differentiated strength of long term and sticky relationship within its client portfolio (multi-decade client relationship in BFSI, HP-DXC channel, Blackstone portfolio) that has helped it emerge as partner of choice for these clients, ensuring sustained growth despite economic challenges. At current price, stock is trading at economical valuations of 12.7x FY22E earnings offering attractive risk-reward. We maintain our Accumulate view on the stock with TP of Rs980 valued at 14x on FY22E earnings in line with its 3-year mean. M D & A key takeaways The objectivity of the company is to harness the business value by using exponential power of cloud and cognitive and providing hyper- personalized digital experiences to clients and their customers. The company deploy industry leading Front2BackTM (F2B) and Service transformation approaches. Company’s differentiated, highly customized and platform-based Service transformation offerings help ‘shrink the core’ and manage run business through the application of digital technologies across legacy environments within an enterprise; this allows businesses to stay ahead. Mphasis applies advancements in cognitive and cloud to traditional application and infrastructure services to bring much needed efficiency and cost effectiveness. DXC’s earnings commetary and US$300mn MRC comforting DXC’ strategic priority in its client portfolio (40 challenged accounts) and renewed drive around tech stacks with ITO in base would collectively drive up larger potential for Mphasis given its capabilities aligned to DXC strategy. DXC’s earnings commentary suggest 8-10% decline in revenues for Q1 and then revival beyond that, which indicates no material deterioration. This along with MRC of US$300mn over next six quarter (60% of current quarterly run rate at US$82mn) indicates no material risk of revenue deterioration in revenues in the DXC/HP channel (26% of rev) Recognized strongly across industry experts Strong capabilities were also recognized by several industry experts in the market such as HFS research has recognized the company as ‘The IT industry hidden Gem’ while Everest Group has ranked Mphasis 2nd among ‘Top IT Service Challengers’ in its PEAK Matrix. CMP Rs 879 Target / Upside Rs 980 / 12% BSE Sensex 34,934 NSE Nifty 10,302 Scrip Details Equity / FV Rs 1,865mn / Rs 10 Market Cap Rs 164bn US$ 2bn 52-week High/Low Rs 1,016/Rs 630 Avg. Volume (no) 267,646 NSE Symbol MPHASIS Bloomberg Code MPHL IN Shareholding Pattern Mar'20(%) Promoters 52.2 MF/Banks/FIs 9.2 FIIs 28.5 Public / Others 10.0 Mphasis Relative to Sensex VP Research: Rahul Jain Tel: +9122 40969771 E-mail: [email protected] Associate: Divyesh Mehta Tel: +91 22 40969768 E-mail: [email protected] 70 80 90 100 110 120 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 MPHL SENSEX Mphasis Accumulate June 30, 2020

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Page 1: Mphasis - Moneycontrol.comimages.moneycontrol.com/.../Mphasis-01072020-dolat.pdf · Mphasis had an event full year as it tested the company’s ability to sustain the tough times

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Strong client proximity to drive sustained financial outperformance Mphasis had an event full year as it tested the company’s ability to sustain the tough times (HP/DXC channel revenues grew just 7.7% dragging the overall traction; rest business grew 17%) and deliver growth by focusing on its core strategy of providing efficiency, reducing cost and fulfilling need of clients by bringing ‘T back to IT’ through cloud and cognitive technology, Dev opps, Cloud native app dev, legacy modernization, Enterprise Automation, Next gen data etc. Strong digital capabilities led to strong traction both in revenue growth (revenues up 14% in FY20) as well as order book (up 13% YoY in FY20 at US$715mn). Also, it has not initiated any specific cost curb measures and would follow its usual round-the-year performance based review system and would just deploy BAU levers to support profitability; which are indication of strong business traction. The company has differentiated strength of long term and sticky relationship within its client portfolio (multi-decade client relationship in BFSI, HP-DXC channel, Blackstone portfolio) that has helped it emerge as partner of choice for these clients, ensuring sustained growth despite economic challenges. At current price, stock is trading at economical valuations of 12.7x FY22E earnings offering attractive risk-reward. We maintain our Accumulate view on the stock with TP of Rs980 valued at 14x on FY22E earnings in line with its 3-year mean. M D & A key takeaways The objectivity of the company is to harness the business value by using exponential power of cloud and cognitive and providing hyper-personalized digital experiences to clients and their customers. The company deploy industry leading Front2BackTM (F2B) and Service transformation approaches. Company’s differentiated, highly customized and platform-based Service transformation offerings help ‘shrink the core’ and manage run business through the application of digital technologies across legacy environments within an enterprise; this allows businesses to stay ahead. Mphasis applies advancements in cognitive and cloud to traditional application and infrastructure services to bring much needed efficiency and cost effectiveness. DXC’s earnings commetary and US$300mn MRC comforting DXC’ strategic priority in its client portfolio (40 challenged accounts) and renewed drive around tech stacks with ITO in base would collectively drive up larger potential for Mphasis given its capabilities aligned to DXC strategy. DXC’s earnings commentary suggest 8-10% decline in revenues for Q1 and then revival beyond that, which indicates no material deterioration. This along with MRC of US$300mn over next six quarter (60% of current quarterly run rate at US$82mn) indicates no material risk of revenue deterioration in revenues in the DXC/HP channel (26% of rev) Recognized strongly across industry experts Strong capabilities were also recognized by several industry experts in the market such as HFS research has recognized the company as ‘The IT industry hidden Gem’ while Everest Group has ranked Mphasis 2nd among ‘Top IT Service Challengers’ in its PEAK Matrix.

CMP Rs 879

Target / Upside Rs 980 / 12%

BSE Sensex 34,934

NSE Nifty 10,302

Scrip Details

Equity / FV Rs 1,865mn / Rs 10

Market Cap Rs 164bn

US$ 2bn

52-week High/Low Rs 1,016/Rs 630

Avg. Volume (no) 267,646

NSE Symbol MPHASIS

Bloomberg Code MPHL IN

Shareholding Pattern Mar'20(%)

Promoters 52.2

MF/Banks/FIs 9.2

FIIs 28.5

Public / Others 10.0

Mphasis Relative to Sensex

VP Research: Rahul Jain

Tel: +9122 40969771

E-mail: [email protected]

Associate: Divyesh Mehta

Tel: +91 22 40969768

E-mail: [email protected]

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June 30, 2020

Page 2: Mphasis - Moneycontrol.comimages.moneycontrol.com/.../Mphasis-01072020-dolat.pdf · Mphasis had an event full year as it tested the company’s ability to sustain the tough times

June 30, 2020 2

Market Growth The global IT industry is on pace to reach $5.2 trillion in 2020, according to the research consultancy IDC. The United States is the largest tech market in the world, representing 32% of the total, or approximately $1.7 trillion for 2020. In the U.S., as well as in many other countries, the tech sector accounts for a significant portion of economic activity. Despite the size of the U.S. market, the majority of technology spending (68%) occurs outside the U.S. Among global regions, western Europe remains a significant contributor, accounting for approximately 20% of technology spent worldwide. China has also established itself as a major player in the global tech market. Macro-economic factors: The fiscal year 2019-20 has been a challenging one for the global economy due to several macro-economic factors including the demand challenges across several industries, the US-China trade war, Brexit uncertainty and more recently the outbreak of the COVID-19 pandemic. As organizations come to terms with a volatile business environment, adoption of digital technologies is gaining momentum and Covid 19 crises has further accelerated the digital adoption. Industries such as insurance, banking, wealth management, healthcare, retail, hospitality, etc., which used to be about high touch, have had to adopt new ways of working. Integration of new-age technologies into business strategy will disrupt traditional business models across industries, making way for agile and efficient ones. After a promising 2017 and early 2018, the global economy went on a declining path, while it started with speculations and apprehensions in 2019. Growth projection reduced from 3.6% in 2018 to 3.3% in 2019. The continued trade war between the U.S and China, uncertainty over BREXIT kept investors in niggle. Markets of heavy industries remained sluggish. Growth projection of the U.S reduced from 2.9% in 2018 to 2.6% in 2019 driven by softer domestic demand and weaker imports. Growth in Europe projected to decline from 2.3% in 2018 to 1.3% in 2019 driven by weaker external demand. Japan was set to grow by 0.9% in 2019 driven by the large contribution of exports due to the sharp fall in imports.

Other Key takeaway from Board report

The Company identified a set of eight services to focus on, as part of bringing ‘T back into IT’ mindset – DevOps, Cloud Native App Dev, Legacy Modernization, Enterprise Automation, Next Gen Data, Application Management Services, Infrastructure Management Services and Cyber Security.

The Company also reorganized the go-to- market teams as Squads on a need basis, these Squads come together to build, bid and deliver specific offerings (or a cross section of offerings) in an agile manner. This squads build capabilities by using various methodologies like Design Thinking, Architecture and Engineering capabilities to engage clients in solution design and problem identification, prioritization and deployment.

Delivering platform led enterprise portfolio modernization and migration programs on industrial Development, Security and Operations (DevSecOps) foundations.

The acquisition and integration of Stelligent of Dev(Sec)Ops enabled Cloud and Cognitive solutions on to AWS.

Page 3: Mphasis - Moneycontrol.comimages.moneycontrol.com/.../Mphasis-01072020-dolat.pdf · Mphasis had an event full year as it tested the company’s ability to sustain the tough times

June 30, 2020 3

Mphasis NEXT Labs has been granted a U.S. patent for its artificial intelligence (AI) system for tracking, managing and analyzing data from unstructured data sources.

NextLabs solutions such as HyperGrafTM a comprehensive, feature-rich, business intelligence and analytics solution, as well as DeepInsightsTM a cognitive intelligence platform, which enables enterprises to gain faster and more effective access to insights from the data.

Helping Clients to tackle Covid 19 by providing varied services In the face of COVID-19, an unprecedented challenge to humankind, Mphasis once again demonstrated its priorities –superior client experiences, the health and safety of their employees and remote workforce, highest levels of cyber security, and a productive workplace.

Virtual Desktop-as-a-Service: A cloud-based virtual desktop offering that deploys new VDI-based technologies to provision a virtual desktop in a matter of seconds. This can be extended to non-production and Disaster Recovery environments.

Employee Assistance-as-a-Service: A combination of conversational AI technologies and advisor based assistance, it efficiently handles employee requests of varying complexity in an intelligent and scalable manner.

Flexible Service Desk: A solution to effortlessly handle increased service call volumes (arising due to the crisis) using a combination of digital connections and expanded helpdesk capacity. It can be augmented with existing service desk platforms and solutions and deploys the power of AI for smart connections and insights.

Cyber Security and Risk Assessment: Focused on fast short-term engagement, it audits WFH solutions from a security perspective, and identifies and executes interventions to fortify the setup.

Contract Data Extraction and Analytics: Company’s proprietary R&D center NEXT Labs offering, it reviews all types of contracts – banking, mortgage, insurance – and identifies liability clauses or coverage terms in complex insurance contracts. This improves the efficiency and timeliness of the contact center calls for insurance services.

COVID Command and Response Center: This is an iBPM response management application for organizations to safeguard the health and safety of employees and channel partners. It facilitates peer-to-peer employee assistance with accelerated responses. Data is managed in a HIPAA-compliant cloud to help protect sensitive employee information.

Contact Center Setup: It comprises tech and ops integrated solutions for handling spike in volumes across different areas – mortgage processing, account opening, insurance services, claims handling, etc.

Knowledge Management Systems: This assists frontline workers in shared services operations to efficiently handle client requests, given the increase in call volumes and shortage of workforce.

Page 4: Mphasis - Moneycontrol.comimages.moneycontrol.com/.../Mphasis-01072020-dolat.pdf · Mphasis had an event full year as it tested the company’s ability to sustain the tough times

June 30, 2020 4

Product launches during the year

Products Client Solution Benefit

DevOps Global leader in health information systems

DevOps automation solution on AWS enabled the client to provision the development pipeline in 10 minutes instead of days

Thereby slashing operating costs and freeing the client’s engineering teams to focus on core business analytics.

Next-gen App Development

Large US based logistics firm It is a model-driven design and next-gen development of modern versions of applications in a self-funded approach.

It reduced time and cost of modernization by 25%, increased efficiency of operations by 40-50%, and improved time-to-market by 30%.

Modernization Leading North American transportation and logistics company

Company enabled the client to build a digital business of the future and accelerate innovations through foundational IT platforms, enterprise automation, handheld technologies and intermodal transportation management.

The client achieved 40% faster time-to-market, and 55% reduction in operational costs.

Enterprise Automation

Large global logistics firm Our cognitive intelligence platform, DeepInsight, helped in optimizing trailer loading through image analytics.

This helped them in identifying trailer loading with 99% accuracy and automated the manual examination process.

Application Management Services

Leading US based medical device manufacturer

Leveraging NextSTEP™ and InfraGenie (an integrated service management and automation platform), we enabled our client to automate and standardize their processes, and migrate to a global delivery model.

This helped them reduce expenses by 42%, improve CSAT scores from 60% to >95%, increase application availability from <80% to 99%, raise incident resolution from 56% to 99%, and improve on-demand scalability.

Infrastructure Management Services

Large European bank with a global footprint

The company developed a complaints management framework for our client’s infrastructure management, and created standard templates for information gathering and task assignment – with IDF/MDF controls to improve categorization of tasks.

Average response time improved from 43% to 92%, open tickets reduced by 65%, and MTTR improved from 18 to 6 hours.

Next-gen Data Leading US based medical device manufacturer

Company's AI-driven engine, DeepInsights™, enabled the client to identify bad transactions in real time and generate predictive analytics recommendations for true positive alerts.

False positives and manual efforts were minimized, thereby lowering operating risks significantly.

Cyber Security Fortune 100 bank holding company

Agile Role Based Access Management provisioning

It enabled the client to achieve 100% identity and access management compliance – and control of 10,000+ SOX and non-SOX IT assets.

Source: Company, DART

Page 5: Mphasis - Moneycontrol.comimages.moneycontrol.com/.../Mphasis-01072020-dolat.pdf · Mphasis had an event full year as it tested the company’s ability to sustain the tough times

June 30, 2020 5

Talent Next – A platform to improve employee competencies It is a platform which combines learning, Individual development, and Performance Management with access to managers as coaches, development tools, processes and other resources. Companies talent transformation strategy closely aligns with its strategy of bringing ‘T’ back to IT.

Innovations leading to recognition in the market. Patent in AI: A US patent for an AI system to track, manage and analyze data from unstructured data sources has bee filed. The newly issued patent relates to leveraging Machine Learning (ML) algorithms to analyze free text from a variety of communication channels – including news and editorial articles, blogs, emails, consumer complaints, and social media. The patented system uses Natural Language Processing (NLP) algorithms to process data in real time. The patented algorithms have been integrated as part of Mphasis’ NEXT Labs solutions such as HyperGraf™ (a comprehensive, feature-rich, business intelligence and analytics solution), and DeepInsights™ (a cognitive intelligence platform), which enables enterprises to gain faster and more effective access to insights from data. AWS Marketplace Listings: Amazon Web Services (AWS) Marketplace for Machine Learning (ML), with 76 ML listings spread over seven industry areas and five ML categories. Company’s listings have been acknowledged for the way it simplifies data experimentation, extract deeper insights from disparate sources and foster enhanced productivity and efficiency. It targets practical, high-value use cases to deliver immediate impact and ROI in critical enterprise business processes and operations. Involvement with startups to resolve challenges faced by its clients: In order to address the evolving needs and challenges Mphasis’ clients face regarding their complex IT environment; The Company has partnered with various start-up and innovation organizations, including:

QEDIT – to offer Privacy-Enhancing Technology solutions on Blockchain to enable enterprises fight fraud, verify identities, and uphold compliance with local data privacy regulations.

Camunda - to boost clients’ workflow and decision automation capabilities and gain a stronger digital foothold for existing Business Process Management (BPM) clients.

Esgyn Corporation - to optimize Open-Source frameworks and expand industry footprint by harnessing big data thus providing business insights for both operational as well as strategic business needs.

Quantel AI - to deliver AI-based Risk Management solutions to build contextual solutions for its clients across multiple industries.

Page 6: Mphasis - Moneycontrol.comimages.moneycontrol.com/.../Mphasis-01072020-dolat.pdf · Mphasis had an event full year as it tested the company’s ability to sustain the tough times

June 30, 2020 6

Partnering with Amazon web services to drive Enterprise solution through Machine learning

Amazon Web Services (AWS) awarded Mphasis the highest possible partner status - Premier Consulting Partner in the AWS Partner Network (APN).

The Company is working towards bringing a financial service focused as well as horizontal set of solutions in application development, modernization, data and DevSecOps harnessing the power of the AWS platform in 2020.

The Company’s new Deep Learning algorithms are also available on Amazon Web Services (AWS) Marketplace for Machine Learning. The on-demand solutions target practical enterprise use cases such as influence analytics, insurance claims analysis, payment card fraud, and image analytics for supply chain and logistics.

AWS Marketplace is enabling Mphasis put the power of machine learning into the hands of developers virtually everywhere. The on-demand solutions target practical enterprise use cases such as influence analytics, insurance claims analysis, payment card fraud, and image analytics for supply chain and logistics.

Risk Factors The Company may face the risk of disruption which may include project termination, delay in renewals and closure of new project. This will impact the topline and bottom line of the Company. However, the Company has plans to mitigate these risks some of which are explained in the subsequent paragraphs: 1. The global geo-political landscape is shifting in the multipolar world, creating new threats to the long-standing vulnerabilities. The unsettled geo-political landscape intertwined with economic tensions may manifest in the form of trade barriers, rules imposing restriction in offshoring, visa/ travel restrictions, and its adverse fallout are macro factors which may impede growth, impact margins, increase cost of operations, pose challenges in free movement of human resources across the globe and ability to offshore. 2. Technological advancements (such as RPA, AI) are growing and creating new opportunities and reducing the need for human resources to deliver certain services and at the same time posing new cyber security threats. 3. The global legal and regulatory environment is now characterized by national interest on the one hand and protection of data privacy on the other. We have witnessed several countries and regional groups coming up with stringent privacy laws, trade sanctions, compliance requirements for foreign and domestic companies which expose companies to risk of non-compliance, sanctions and penalties thereby increasing the cost of operations significantly.

Page 7: Mphasis - Moneycontrol.comimages.moneycontrol.com/.../Mphasis-01072020-dolat.pdf · Mphasis had an event full year as it tested the company’s ability to sustain the tough times

June 30, 2020 7

Director Remuneration

Key Management Personnels Designation Remuneration (Rs Mn) As a % of Profits

FY19-20 FY18-19 FY19-20 FY18-19

Davinder Singh Brar Chairman and Independent Director 6.1 6.0 0.05% 0.06%

Narayanan Kumar Independent Director 5.5 5.5 0.05% 0.05%

Jan Kathleen Hier Independent Director 5.2 5.1 0.04% 0.05%

David Lawrence Johnson Director 4.9 4.8 0.04% 0.04%

Paul James Upchurch Director 4.8 4.8 0.04% 0.04%

Marshall Jan Lux Director 4.8 3.2 0.04% 0.03%

Amit Dixit Director

Amit Dalmia Director

Nitin Rakesh CEO and Executive Director 122.8 120.8 1.04% 1.13%

V. Suryanarayanan EVP & CFO 25.4 23.6 0.21% 0.22%

Subramanian Narayan VP & CS 6.5 6.6 0.06% 0.06%

Total KMP Remuneration 186.1 180.5 1.57% 1.68%

Profits for the Year 11848.4 10733.5

Source: Company, DART

KMP remuneration

Senior Managerial Personnels Designation Options Grant Exercise Price Amount (Rs mn)

Ravi Vasantraj SVP and Global Head – Business Process Services

40000 900 36.0

Andres Ricaurte Senior Vice-President (Sales), DCMU

24000 850 20.4

Christopher Cory Schmeisser Vice-President, ITO- HPCORE 13500 850 11.5

Kolanchery Varghese Renjeev Senior Vice-President,APPS 21000 850 17.9

Krishna Srinivasan Senior Vice-President (Sales),

DCMU 10000 850 8.5

Rajiv Kumar Naranjandass Malhotra Senior Vice-President (Sales),

DCMU 24000 850 20.4

Source: Company, DART

Shareholding Pattern x

Category of Shareholder (%) FY2019 FY2020

Promoters 56.18 52.26

i) Foreign

Public Shareholding

i) Mutual Funds 6.78 7.57

ii) Banks/Financial Institutions 2.08 0.39

iii) Alternative Investment Funds 0.05 0.05

iv) FIIs 0 0.4

v) Insurance Companies 5.26 0

Non-Institutions 29.64 39.33

Shares held by custodians for GDRs and ADRs 0 0

Total 100 100

Source: Company, DART

Page 8: Mphasis - Moneycontrol.comimages.moneycontrol.com/.../Mphasis-01072020-dolat.pdf · Mphasis had an event full year as it tested the company’s ability to sustain the tough times

June 30, 2020 8

Financial Performance

Profit & Loss Analysis

Mphasis continued the growth momentum in FY2020 and have registered consecutive year of double-digit growth. Reported Net revenue in FY20 was Rs 88.4bn representing a growth of 14.4% FY19. On a constant currency basis, overall gross revenue grew 11.7% in FY20.

Direct International revenue grew 15.4% on a reported basis and 13.8% in constant currency basis in FY20 to Rs 61.5bn. Direct Core, which constitutes 83% of FY20 Direct International revenue, grew 16.9% in FY20 on a reported basis and 15.4% in constant currency basis. The growth has been broad based across three key portfolios of existing strategic accounts, Blackstone portfolio companies and new accounts. Revenue from New Gen services, which is one of the key focus areas, grew 35% in FY20. New Gen Services contributed 53.1% of Direct Core revenues for the year ended March 2020.

Mphasis reported 11% YoY growth largely due to weak performance by non-top 10 clients (grew 8% YoY – 40% of rev) and the top clients (grew 16% YoY – 14% of rev) that was partially been covered up by strong performance in Top 2 – 5 clients (grew 26% YoY – 34% of rev).

Market Segment: Overall broad based de growth was witnessed in market segment compared to previous. HP Channel revenue (27% of rev) grew 8% YoY to INR 23.8bn in FY20. Direct International (70% of rev) grew 15% YoY to INR 61.553bn with over $300mn in committed revenues in DXC over next six quarters (implying ~ 60% of current run rate), we do not expect any material specific risk in DXC/HP channel and have built in revenue CAGR of -3% over FY20-22E and others (3% of rev) grew 5% YoY to INR 2.8bn in FY 20.

Geographic Growth: US (78% of rev) grew 12% YoY in INR terms. Europe (11% of rev) grew 13% YoY INR terms, India (5% of rev) grew 0.4% YoY in INR terms and RoW (6% of rev) grew 52% YoY in INR Terms.

Vertical Growth: A broad based de – growth was seen across verticals as compared to previous year in INR terms. Banking and Capital Markets vertical de – grew at 6.0% YoY , Insurance de – grew at 7.0% YoY, Information Tech, Communication and Entertainment de – grew at -14% YoY, Emerging Industries de – grew at 16% YoY.

EBIT Margin remained stable with slight dip of 10 bps for the full year at 16%. This was due to strong operating leverage and lower than expected wage impact along with centralization of sales efforts and improvement in utilization.

Net profit was up by 10% to INR 11.8bn on YoY basis. Net profit margin declined by 50bps YoY to 13.4% as part of the rent is now expensed in the interest cost under IND AS 116. EPS declined by 10% YoY to INR 63.56 per share.

Attrition rate remained stable at 20% and total headcount has increased to 18,612 (up 1.4% YoY).

Page 9: Mphasis - Moneycontrol.comimages.moneycontrol.com/.../Mphasis-01072020-dolat.pdf · Mphasis had an event full year as it tested the company’s ability to sustain the tough times

June 30, 2020 9

Balance Sheet Analysis

Billed DSO decreased to 34 days’ v/s 44 days (FY19). Unbilled Revenue stood at INR 9.3bn and unbilled DSO stands at 38days. Billed + Unbilled DSO stands at 72 days.

Lease non – current liability stands at INR 5.8bn and lease current liability stands at INR 1.3bn. while Right of use assets stands at INR 1.4bn.

Cash and Cash equivalents increased to INR 24.7bn (Rs132 per share) from versus INR 19.8bn a year ago. This is after paying out Dividend of about Rs 27 per share.

Mphasis issued 132500 shares in ESOPs and added INR 114Mn in Equity.

Cash Flow Analysis

Trade receivables and unbilled receivables increased by Rs 1.7bn from -4.6bn and Trade payables decreased by -1.4bn from 2.8bn.

Net Cash Flow from Operating Activities grew by 39% to INR 13.21bn in FY20. Operating cash flows are at 111% (v/s 88.5% in FY19) of Net Income.

Capex stood at INR 1.2bn in FY20 v/s INR 0.8bn YoY. FCF stood at Rs11.9bn.

Page 10: Mphasis - Moneycontrol.comimages.moneycontrol.com/.../Mphasis-01072020-dolat.pdf · Mphasis had an event full year as it tested the company’s ability to sustain the tough times

June 30, 2020 10

Story in chart

Revenue growth YoY slowed down to 9.7% Direct-I continues to perform - 14.5% YoY

Source: Company, DART Source: Company, DART

Co. & Vertical wise QoQ growth in Rs terms TTM TCV grew 13% YoY led by strong Q4 wins

Source: Company, DART Source: Company, DART

Operating Margin above 8 quarter average Net headcount declined by ~890 QoQ

Source: Company, DART Source: Company, DART

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Q4

FY1

9

Q1

FY2

0

Q2

FY2

0

Q3

FY2

0

Q4

FY2

0

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June 30, 2020 11

Profit and Loss Account

(Rs Mn) FY19A FY20A FY21E FY22E

Revenue 77,311 88,436 94,354 103,230

Total Expense 64,071 71,931 76,943 84,072

COGS 55,648 62,781 67,415 73,570

Employees Cost 0 0 0 0

Other expenses 8,423 9,150 9,528 10,502

EBIDTA 13,240 16,505 17,411 19,157

Depreciation 759 2,317 2,554 2,641

EBIT 12,481 14,188 14,857 16,516

Interest 155 813 840 862

Other Income 1,747 1,780 1,617 1,830

Exc. / E.O. items 0 0 0 0

EBT 14,073 15,155 15,634 17,485

Tax 3,339 3,306 3,936 4,401

RPAT 10,734 11,849 11,698 13,084

Minority Interest 0 0 0 0

Profit/Loss share of associates 0 0 0 0

APAT 10,734 11,849 11,698 13,084

Balance Sheet

(Rs Mn) FY19A FY20A FY21E FY22E

Sources of Funds

Equity Capital 1,862 1,865 1,866 1,867

Minority Interest 0 0 0 0

Reserves & Surplus 50,636 56,431 62,529 70,011

Net Worth 52,498 58,296 64,396 71,878

Total Debt 5,426 5,713 5,513 5,313

Net Deferred Tax Liability 1,366 567 623 686

Total Capital Employed 59,290 64,575 70,532 77,877

Applications of Funds

Net Block 21,711 30,228 29,049 27,908

CWIP 16 74 74 74

Investments 13,292 13,257 16,787 20,907

Current Assets, Loans & Advances 38,692 43,976 46,639 51,932

Inventories 0 0 0 0

Receivables 9,554 17,696 20,452 22,376

Cash and Bank Balances 6,416 11,257 10,752 13,627

Loans and Advances 0 0 0 0

Other Current Assets 22,722 15,024 15,435 15,929

Less: Current Liabilities & Provisions 14,421 22,959 22,017 22,944

Payables 7,850 6,667 5,300 5,781

Other Current Liabilities 6,570 16,293 16,717 17,163

sub total

Net Current Assets 24,271 21,017 24,622 28,988

Total Assets 59,290 64,575 70,532 77,877

E – Estimates

Page 12: Mphasis - Moneycontrol.comimages.moneycontrol.com/.../Mphasis-01072020-dolat.pdf · Mphasis had an event full year as it tested the company’s ability to sustain the tough times

June 30, 2020 12

Important Ratios

Particulars FY19A FY20A FY21E FY22E

(A) Margins (%)

Gross Profit Margin 28.0 29.0 28.6 28.7

EBIDTA Margin 17.1 18.7 18.5 18.6

EBIT Margin 16.1 16.0 15.7 16.0

Tax rate 23.7 21.8 25.2 25.2

Net Profit Margin 13.9 13.4 12.4 12.7

(B) As Percentage of Net Sales (%)

COGS 72.0 71.0 71.4 71.3

Employee 0.0 0.0 0.0 0.0

Other 10.9 10.3 10.1 10.2

(C) Measure of Financial Status

Gross Debt / Equity 0.1 0.1 0.1 0.1

Interest Coverage 80.5 17.5 17.7 19.2

Inventory days 0 0 0 0

Debtors days 45 73 79 79

Average Cost of Debt 3.3 14.6 15.0 15.9

Payable days 37 28 21 20

Working Capital days 115 87 95 102

FA T/O 3.6 2.9 3.2 3.7

(D) Measures of Investment

AEPS (Rs) 57.6 63.5 62.7 70.1

CEPS (Rs) 61.7 75.9 76.4 84.2

DPS (Rs) 27.0 25.0 25.0 25.0

Dividend Payout (%) 46.8 39.4 39.9 35.7

BVPS (Rs) 281.9 312.5 345.0 384.9

RoANW (%) 20.0 21.4 19.1 19.2

RoACE (%) 18.3 20.4 18.6 18.8

RoAIC (%) 23.7 26.7 26.3 26.6

(E) Valuation Ratios

CMP (Rs) 879 879 879 879

P/E 15.2 13.8 14.0 12.5

Mcap (Rs Mn) 163,925 163,925 163,925 163,925

MCap/ Sales 2.1 1.9 1.7 1.6

EV 162,934 158,380 158,686 155,610

EV/Sales 2.1 1.8 1.7 1.5

EV/EBITDA 12.3 9.6 9.1 8.1

P/BV 3.1 2.8 2.5 2.3

Dividend Yield (%) 3.1 2.8 2.8 2.8

(F) Growth Rate (%)

Revenue 18.1 14.4 6.7 9.4

EBITDA 24.6 24.7 5.5 10.0

EBIT 25.9 13.7 4.7 11.2

PBT 22.0 7.7 3.2 11.8

APAT 26.2 10.4 (1.3) 11.8

EPS 30.9 10.2 (1.3) 11.8

Cash Flow

(Rs Mn) FY19A FY20A FY21E FY22E

CFO 9,497 13,210 9,171 13,074

CFI 2,893 1,408 (4,132) (4,655)

CFF (13,042) (8,238) (5,544) (5,544)

FCFF 8,682 11,967 7,796 11,574

Opening Cash 7,068 3,520 11,257 10,752

Closing Cash 6,416 9,901 10,752 13,627

E – Estimates

Page 13: Mphasis - Moneycontrol.comimages.moneycontrol.com/.../Mphasis-01072020-dolat.pdf · Mphasis had an event full year as it tested the company’s ability to sustain the tough times

DART RATING MATRIX

Total Return Expectation (12 Months)

Buy > 20%

Accumulate 10 to 20%

Reduce 0 to 10%

Sell < 0%

Rating and Target Price History

Month Rating TP (Rs.) Price (Rs.)

Jan-19 Buy 1,250 921

May-19 Buy 1,150 952

Jun-19 Buy 1,150 972

Jul-19 Buy 1,220 945

Jul-19 Buy 1,180 930

Nov-19 Buy 1,180 907

Nov-19 Buy 1,180 879

Feb-20 Buy 1,150 937

May-20 Buy 840 803

Jun-20 Accumulate 980 882 *Price as on recommendation date

DART Team

Purvag Shah Managing Director [email protected] +9122 4096 9747

Amit Khurana, CFA Head of Equities [email protected] +9122 4096 9745

CONTACT DETAILS

Equity Sales Designation E-mail Direct Lines

Dinesh Bajaj VP - Equity Sales [email protected] +9122 4096 9709

Kapil Yadav VP - Equity Sales [email protected] +9122 4096 9735

Yomika Agarwal VP - Equity Sales [email protected] +9122 4096 9772

Jubbin Shah VP - Derivatives Sales [email protected] +9122 4096 9779

Ashwani Kandoi AVP - Equity Sales [email protected] +9122 4096 9725

Lekha Nahar AVP - Equity Sales [email protected] +9122 4096 9740

Equity Trading Designation E-mail

P. Sridhar SVP and Head of Sales Trading [email protected] +9122 4096 9728

Chandrakant Ware VP - Sales Trading [email protected] +9122 4096 9707

Shirish Thakkar VP - Head Domestic Derivatives Sales Trading [email protected] +9122 4096 9702

Kartik Mehta Asia Head Derivatives [email protected] +9122 4096 9715

Dinesh Mehta Co- Head Asia Derivatives [email protected] +9122 4096 9765

Bhavin Mehta VP - Derivatives Strategist [email protected] +9122 4096 9705

600

740

880

1,020

1,160

1,300

Dec-1

8

Jan-1

9

Fe

b-1

9

Mar-

19

Apr-

19

May-1

9

Jun-1

9

Jul-19

Aug-1

9

Sep-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan-2

0

Fe

b-2

0

Mar-

20

Apr-

20

May-2

0

Jun-2

0

(Rs) MPHL Target Price

Dolat Capital Market Private Limited. Sunshine Tower, 28th Floor, Senapati Bapat Marg, Dadar (West), Mumbai 400013

Page 14: Mphasis - Moneycontrol.comimages.moneycontrol.com/.../Mphasis-01072020-dolat.pdf · Mphasis had an event full year as it tested the company’s ability to sustain the tough times

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