mphasis (mphl in)...management cited continued investments in supply chain and transition costs...
TRANSCRIPT
October 21, 2018 1
Rating: ACCUMULATE | CMP: Rs1,068 | TP: Rs1,220
Modest Revenue and margin miss
Softer performance in Digital Risk leads to revenue miss: Mphasis 2QFY19
results delivered a modest disappointment on USD revenues, margins and PAT.
Revenues for the quarter came at USD275.5mn were up 2.5% QoQ and below our
estimates (Ple: USD278mn). Constant currency growth stood at 3% QoQ.
Revenues from Direct Channel Markets International (Ex Digital Risk) grew by 3.9%
QoQ and 14.3% YoY in constant currency. Growth was driven by traction in
Strategic accounts, new client wins and Blackstone portfolio. HP channel (28% of
total revenues) grew by 6% QoQ and 23% YoY and remained strong. Digital Risk
(11% of total revenues) remained soft for quarter with revenues at ~USD28mn for
the quarter down ~10% YoY. Revenues from Emerging Markets (Predominantly
India) which accounts to 4% of total revenues grew by 18% QoQ. Total Contract
Value(TCV) of deal wins for the quarter remained strong at USD210mn for 2QFY19
(vs USD123mn in 2QFY18). This is the highest ever TCV win over the past few
quarters. Management cited that 77% of the TCV wins are in new generation
services. Mphasis cited that it is also seeing an Increase in average size of deals in
the new deal wins. Company continues to focus on “One Mphasis” approach for
driving cross selling of services across its clients. Hence, while Digital Risk is seeing
softness mortgage origination business owing to rising interest rates, Mphasis is
focusing on cross selling other services.
Margins below estimates: Reported EBIDTA margin came at 17.4% down 30bps
QoQ and below our estimates (Pl: 18.7%). Company had higher hedging losses
(Rs330mn) for 2QFY19 and Mphasis takes hedge gain/(loss) in revenue line.
Hence, reported EBIDTA margin was tepid for the quarter. Management cited that
owing to unfavorable hedge position for FY19 (Hedges expiring in FY19 have an
average rate of 67.5), it would not get any gain from the depreciating rupee ( as
gains from translation would be negated by hedge losses).Adjusted EBIDTA margin
for the quarter came at 18.8% up 100bps QoQ. Management cited continued
investments in supply chain and transition costs associated with new deals also
weighed on margins for the quarter. EBIT margin for the quarter came at 16.5%
down 10bps QoQ. Mphasis would have headwinds from wage hikes in 3QFY19.
Company continues to maintain the stated EBIT margin guidance band of 15-17%
for FY19. PAT came at Rs2718mn and below our estimates (Ple : Rs 2854mn).
Emerging verticals drive growth: BFS (up 0.3% and 12% YoY), Insurance ( up
2.8% and down 0.2% YoY) and accounted to 46/11% of total revenues
respectively. Mphasis derives 57% of total revenues from BFSI vertical and enjoys
vertical specific competency in this vertical. For 2QFY19, Emerging vertical (which
include Transportation, Logistics and Healthcare) have grown by 7.6% QoQ and
accounted to 25.7% of total revenues. Mphasis’ management cited that it continues
to focus on investing in emerging verticals to broaden its portfolio.
Valuation and View: Led by 2Q revenue miss, we model Mphasis USD revenue
to grow by 12.7/13.3% for FY19/FY20E (vs 13.8/13.3% modelled earlier). We
expect HP channel /Direct Channel Mature markets revenues to grow by 22/11.5%
YoY for FY19 and remain the growth drivers. However, Mphasis could fall behind
other midcap peers on USD revenue growth for FY19. (LTI/Mindtree/NIIT Tech
likely to deliver 18/18/17% organic USD revenue growth for FY19). We model
Mphasis’ EBIT margin at 15.9/16.4% for FY19/FY20E (vs 15.1% in FY18). Our EPS
estimates are modestly trimmed by 3.5/2//3% to Rs54/64/71.5/sh for
FY19/FY20E/FY21E led by margin downgrade. Mphasis trades at 16.5x FY20 EPS
(LTI/Mindtree/NIIT Tech trading at 18/15/15.7x). Lower TP by 3% to Rs 1220/sh
(18x Sep 20E EPS vs 18x earlier) led by modest earnings cut. Retain Accumulate.
Net cash on balance sheet stands at Rs23bn (Rs119/sh) which is 11% of Mcap.
Mphasis (MPHL IN)
October 21, 2018
Q2FY19 Result Update
☑ Change in Estimates | ☑ Target | Reco
Change in Estimates
Current Previous
FY19E FY20E FY19E FY20E
Rating ACCUMULATE ACCUMULATE
Target Price 1,220 1,250
Sales (Rs. m) 77,051 90,755 78,649 92,117
% Chng. (2.0) (1.5)
EBITDA (Rs. m) 13,031 15,744 13,849 16,075
% Chng. (5.9) (2.1)
EPS (Rs.) 54.1 64.0 56.0 65.3
% Chng. (3.4) (1.9)
Key Financials
FY17 FY18 FY19E FY20E
Sales (Rs. m) 60,763 65,460 77,051 90,755
EBITDA (Rs. m) 9,689 10,594 13,031 15,744
Margin (%) 15.9 16.2 16.9 17.3
PAT (Rs. m) 7,916 8,344 10,247 11,901
EPS (Rs.) 37.6 43.2 54.1 64.0
Gr. (%) 9.2 14.8 27.6 16.1
DPS (Rs.) 36.4 19.7 22.0 25.6
Yield (%) 3.4 1.8 2.1 2.4
RoE (%) 13.2 14.3 19.5 22.3
RoCE (%) 12.7 13.7 18.3 20.9
EV/Sales (x) 3.3 2.9 2.4 2.0
EV/EBITDA (x) 20.5 17.8 14.3 11.5
PE (x) 28.4 24.7 19.4 16.7
P/BV (x) 3.7 3.8 4.0 3.5
Key Data MBFL.BO | MPHL IN
52-W High / Low Rs.1,279 / Rs.641
Sensex / Nifty 34,316 / 10,304
Market Cap Rs.206bn/ $ 2,811m
Shares Outstanding 193m
3M Avg. Daily Value Rs.1068.77m
Shareholding Pattern (%)
Promoter’s 52.34
Foreign 29.07
Domestic Institution 8.71
Public & Others 9.88
Promoter Pledge (Rs bn) -
Stock Performance (%)
1M 6M 12M
Absolute (12.8) 20.6 64.3
Relative (5.3) 20.6 56.1
Madhu Babu
[email protected] | 91-22-66322300
Rajat Gandhi
[email protected] | 91-22-66322246
Mphasis
October 21, 2018 2
Q1FY19: Consolidated P&L
(Rs mn) Q2FY19 Q1FY19 QoQ Q2FY18 YoY Ple Var (Ple vs
Actual)
Consolidated Sales (USD mn) 275.5 268.7 2.5% 242 13.7% 278.2 -1.0%
Consolidated sales (Rs mn) 19,149 18202 5.2% 16,046 19.3% 19,536 -2.0%
EBITDA 3,338 3,221 3.6% 2,463 35.5% 3,653 -8.6%
EBITDA Margins 17.4% 17.7% -26.5 15.3% 208 18.7% -126.7
PAT 2,718 2,583 5.2% 1,976 37.6% 2,854 -4.8%
Source: Company, PL
HP channel delivers steady growth: Mphasis delivered a modest
disappointment in 2QFY19 with USD revenues below our
estimates. Revenues in 2QFY19 stood at USD 275.5Mn up 2.5% QoQ and
below our estimates (Ple: USD 278Mn). HP channel (28% of total revenues)
grew by 6% QoQ and 24% YoY. Mphasis also sees strong opportunities in HP
channel across the four entities (HP Enterprises, DXC, Micro Focus, HP Inc.).
Margin below estimates: Reported EBITDA Margins came at 17.4% and
below our estimates (PLe: 17.7%). EBIT margin for the quarter stood at 16.5%
down 10bps QoQ. PAT at Rs2718mn was 5% below our estimates
(Rs2854mn) led by softer margins.
Revenues by SBU (USD Mn) and growth (%)
Fig in USD mn Q2FY19 Q1FY19 QoQ gr. Q2FY18 YoY gr.
HP channel 78 74 6.0% 63 23.1%
Direct Channel (Mature Markets) 187.3 186 0.4% 170 9.9%
Direct Channel ( Emerging Markets) 10 9 18.0% 9 18.7%
Total Revenues 275.5 268.7 2.5% 242 13.7%
Source: Company, PL
Mphasis Cons. USD Revenue (USD Mn) and revenue growth (YoY)
234.6
236.9
229.0
225.3
224.5
224.1
223.5
221.5 230.9 2
42.3 251.4 2
64.1
268.7
275.5
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
200.0
210.0
220.0
230.0
240.0
250.0
260.0
270.0
280.0
1Q
FY
16
2Q
FY
16
3Q
FY
16
4Q
FY
16
1Q
FY
17
2Q
FY
17
3Q
FY
17
4Q
FY
17
1Q
FY
18
2Q
FY
18
3Q
FY
18
4Q
FY
18
1Q
FY
19
2Q
FY
19
(US
$ m
n)
Revenues YoY growth (%) (RHS)
Source: Company, PL
Mphasis
October 21, 2018 3
USD revenue growth QoQ (%)
-4.2%
-5.4%
0.8%
2.8%
1.0%
-3.4%
-1.6%
-0.3%-0.2%-0.3%-0.9%
4.2%4.9%
3.8%
5.0%
1.7%2.5%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
2Q
FY
15
3Q
FY
15
4Q
FY
15
1Q
FY
16
2Q
FY
16
3Q
FY
16
4Q
FY
16
1Q
FY
17
2Q
FY
17
3Q
FY
17
4Q
FY
17
1Q
FY
18
2Q
FY
18
3Q
FY
18
4Q
FY
18
1Q
FY
19
2Q
FY
19
Source: Company, PL
HP Channel revenues (USD mn) and revenue growth QoQ (%)
89.9
85.6
78.4
71.3
67.5
62.9
55.5
54.8
52.5
53.5
53.7
54.1 59.6
63.3
65.4 71.4
73.5 77.9
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
1Q
FY
15
2Q
FY
15
3Q
FY
15
4Q
FY
15
1Q
FY
16
2Q
FY
16
3Q
FY
16
4Q
FY
16
1Q
FY
17
2Q
FY
17
3Q
FY
17
4Q
FY
17
1Q
FY
18
2Q
FY
18
3Q
FY
18
4Q
FY
18
1Q
FY
19
2Q
FY
19
(US
D m
n)
HP Channel revenues Growth (%) (RHS)
Source: Company, PL
Revenue growth to remain on strong footing: We expect Mphasis to show
steady Revenue growth trajectory in FY19. HP channel and Direct Channel
Mature Markets would remain the growth drivers for FY19.
Mphasis
October 21, 2018 4
Consolidated Revenue Model of Mphasis
Fig in USD mn FY15 FY16 FY17 FY18 FY19E FY20E FY21E
HP channel 325 241 214 260 318 379 318
Growth (%) 106.9 (26.0) (11.3) 21.5 22.3% 19.4% 22.3%
As a % of Total Revenues 34.5 26 23.9 26.3 28.5% 30.1% 28.5%
Mature market - direct channel 416 475 512 575 641 716 641
Growth (%) 134.3 14.1 7.8 12.3 11.6% 11.6% 11.6%
As a % of Total Revenues 44.1 51.3 57.3 58.1 57.6% 56.8% 57.6%
Emerging market - direct channel 76 56 36 38 40 45 40
Growth (%) 193.6 (27.0) (34.5) 4.0 6.5% 12.1% 6.5%
As a % of Total Revenues 8.1 6.0 4.1 3.8 3.6% 3.6% 3.6%
Digital Risk 127 155 131 116 115 120 115
Growth (%) NA 22.2 (15.1) (11.4) -1.2% 4.2% -1.2%
As a % of Total Revenues 13.4 16.7 14.7 11.8 10.3% 9.5% 10.3%
Total Revenues 944 926 894 989 1114 1260 1114
Growth (%) (7.9) (1.9) (3.5) 10.6 12.7% 13.1% 12.7%
Source: Company, PL
TCV of deal wins for the quarter stood at USD210mn in 2QFY19 (vs
USD123mn in 2QFY18). Higher Onsite revenues appear to be aiding revenue
growth. For 2Q, revenues from onsite accounted to 58% of total revenues up
50bps QoQ and 270bps YoY.
TCV wins of Mphasis (USD Mn)
7690
6176
9683
96 90
183
123 130116
153
210
0
50
100
150
200
250
1Q
FY
16
2Q
FY
16
3Q
FY
16
4Q
FY
16
1Q
FY
17
2Q
FY
17
3Q
FY
17
4Q
FY
17
1Q
FY
18
2Q
FY
18
3Q
FY
18
4Q
FY
18
1Q
FY
19
2Q
FY
19
Source: Company, PL
Mphasis
October 21, 2018 5
We note that Mphasis reports forex hedge gains in the topline. Excluding the
Hedge gains from topline, Adjusted EBIDTA margin for the quarter would be
18.7% up 100bps QoQ. Mphasis’ Adjusted EBIDTA margin stood at multi
quarter high led by INR depreciation.
Adjusted EBITDA Margin vs. Average rate (USD bs INR)
16.9
%
14.6
%
14.6
%
15.3
%
14.3
% 15.0
%
14.3
%
15.5
%
16.1
%
16.2
%
15.5
%
15.9
%
14.9
%
15.3
% 16.5
%
17.7
%
17.7
% 18.7
%
54.0
56.0
58.0
60.0
62.0
64.0
66.0
68.0
70.0
72.0
13.5%
14.5%
15.5%
16.5%
17.5%
18.5%
19.5%
1Q
FY
15
2Q
FY
15
3Q
FY
15
4Q
FY
15
1Q
FY
16
2Q
FY
16
3Q
FY
16
4Q
FY
16
1Q
FY
17
2Q
FY
17
3Q
FY
17
4Q
FY
17
1Q
FY
18
2Q
FY
18
3Q
FY
18
4Q
FY
18
1Q
FY
19
2Q
FY
19
EBITDA Average Rate
Source: Company, PL
Reported EBITDA Margin and Adjusted EBITDA Margin
14.3
%
15.0
%
14.3
% 15.5
%
16.1
%
16.2
%
15.5
%
15.9
%
14.9
%
15.3
% 16.5
% 17.7
%
17.7
%
17.4
%
14.0
%
14.7
%
14.0
% 15.5
%
15.7
%
15.2
%
14.4
%
14.0
%
12.2
% 13.2
% 14.5
% 15.8
%
17.8
% 18.8
%
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
18.0%
19.0%
20.0%
1Q
FY
16
2Q
FY
16
3Q
FY
16
4Q
FY
16
1Q
FY
17
2Q
FY
17
3Q
FY
17
4Q
FY
17
1Q
FY
18
2Q
FY
18
3Q
FY
18
4Q
FY
18
1Q
FY
19
2Q
FY
19
Reported EBIDTA margin Adjusted EBIDTA margin
Source: Company, PL
Mphasis
October 21, 2018 6
Key Metrics:
Revenue by Channels (%)
Revenues by Channels (%) 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19
HP channel 23.4 23.9 24.0 24.4 25.8 26.1 26.0 27.0 27.4 28.0
Mature market - Direct channel 72.5 72.2 71.3 72.0 70.1 70.3 70.3 69.0 69.4 68.0
Emerging market - direct channel 4.1 3.9 4.6 3.6 4.1 3.6 3.7 4.0 3.2 4.0
Source: Company, PL
Revenue by Verticals (%)
Revenues by vertical (%) 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19
Banking and Capital markets 48.9 50.3 49.0 48.8 49.1 48.6 47.7 47.3 47.0 46.0
Insurance 15.2 14.5 15.0 14.6 13.5 12.9 12.8 11.6 11.3 11.3
Information Technology, communication and entertainment
10.2 9.6 9.7 10.7 12.5 14.1 14.4 16.9 17.2 17.0
Emerging Industries 25.7 25.7 26.3 25.9 24.9 24.4 25.1 24.2 24.5 25.7
Source: Company, PL
Revenue by Nature of Services (%)
Revenue by Service Mix (%) 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19
Application maintenance 32.8 34.1 35.8 35.4 37.0 36.9 35.6 34.6 33.1 31.2 30.2 34.4
Application development 22.7 24.5 23.2 23.9 23.1 24.5 24.7 24.0 26.3 26.2 27.5 27.7
Customer service 2.3 2.0 1.9 1.8 1.9 1.8 1.5 1.7 1.4 1.3 1.2 1.0
Service/ Technical help desk 1.7 2.3 2.1 2.4 2.3 2.2 5.4 7.2 7.6 7.4 8.2 6.5
Transaction processing service 7.0 7.1 7.0 7.0 6.2 6.5 7.0 6.8 7.0 6.9 6.6 6.3
IMS 14.9 13.6 13.6 13.6 14.2 13.8 13.8 13.4 13.2 15.2 14.8 14.2
Knowledge service 17.9 16.3 16.2 15.7 15.0 13.8 12.0 12.2 10.8 11.7 11.4 9.8
License income 0.8 0.1 0.2 0.3 0.4 0.6 0.1 0.1 0.6 0.1 0.1 0.1
Source: Company, PL
Client Metrics
3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19
Clients contributing more than
US$ 1 mn revenues 102 103 98 98 92 90 90 90 88 90 93 95
Direct channel 63 64 64 64 59 57 58 59 57 58 61 63
HP channel 39 39 34 34 33 33 32 31 31 32 32 32
$ 5 mn revenues 35 35 27 27 30 36 39 37 38 37 37 36
Direct channel 25 27 21 21 24 26 26 24 25 24 24 24
HP channel 10 8 6 6 6 10 13 13 13 13 13 12
$10 mn revenues 18 14 14 14 14 14 15 15 17 17 18 19
Direct channel 14 11 12 12 12 12 13 12 13 14 15 15
HP channel 4 3 2 2 2 2 2 3 4 3 3 5
$20mn revenues 8 8 9 9 9 7 7 7 8 8 8 8
Direct channel 6 6 7 7 7 6 6 6 6 6 6 6
HP channel 2 2 2 2 2 1 1 1 2 2 2 2
Source: Company, PL
Mphasis
October 21, 2018 7
Headcount Metrics
3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19
Onsite
Applications 2,311 2,322 2,340 2,357 2299 2353 2373 2363 2392 2456 2550 2703
ITO 195 212 215 281 251 274 277 676 1106 1120 1087 1071
BPO 1,564 1,359 1,236 1,189 1127 1040 1044 998 981 950 914 914
Offshore
Applications 8,423 8,441 8,495 8,468 8615 8807 8668 8486 8228 8281 8680 8958
ITO 3,730 3,209 3,158 3,196 3136 3074 3055 3011 3062 3121 3075 2937
BPO 6,019 5,511 5,682 5,561 5351 5176 5191 5360 5304 5139 5092 5140
Sales and marketing 313 300 289 300 315 325 346 330 300 278 270 270
General and admin 957 948 943 939 940 945 943 932 897 894 898 895
Total Headcount 23,512 22,302 22,358 22,291 22034 21994 21897 22156 22270 22239 22566 22888
Net addition (612) (1,210) 56 (67) (257) (40) (97) 259 114 (31) 327 322
Source: Company, PL
Mphasis
October 21, 2018 8
Consolidated Model Sheet of Mphasis
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Total Revenues( USD mn) 1024 944 926 894 989 1114 1260 1431
Growth/(Decline) YoY 0% -8% -2% -3% 10.6% 12.7% 13.1% 13.6%
Average Exchange Rate(USD vs INR) 61.5 61.3 65.6 67.1 64.5 69.9 72.0 70.0
Revenues ( Rs mn) 62,254 57,948 60,879 60,763 65,460 77,051 90,755 100,281
Growth YoY(%) 7.4% -6.9% 5.1% -0.2% 7.7% 17.7% 17.8% 10.5%
EBIDTA 10,553 8,700 8,970 9,689 10,594 13,031 15,744 17,471
PAT 7,418 6,778 7,242 8,068 8,475 10,247 11,901 13,275
EBIDTA margin(%) 17.0% 15.0% 14.7% 15.9% 16.2% 16.9% 17.3% 17.4%
EBIT margin(%) 15.0% 13.3% 13.5% 14.6% 15.1% 16.0% 16.5% 16.6%
PAT Margin(%) 11.9% 11.7% 11.9% 13.3% 12.9% 13.3% 13.1% 13.2%
ROE(%) 14.8% 12.8% 12.3% 13.4% 14.6% 19.5% 22.3% 22.2%
Dividend Payout ratio 46.0% 49.9% 0.0% 95.0% 45.0% 40.0% 40.0% 40.0%
EPS 35 32 34 38 43.4 54.1 64.1 71.4
EPS Growth(%) -2.3% -7.1% 7.2% 11.0% 13.7% 24.5% 18.4% 11.5%
P/E 33.3 35.8 33.4 30.1 26.5 19.6 16.5 14.8
P/S 3.9 4.2 4.0 4.0 3.4 2.7 2.3 2.0
EV/EBIDTA 20.8 24.8 23.8 22.2 19.0 14.6 11.8 10.3
Consolidated Balance sheet (Rs mn)
Net cash on Balance sheet 18,424 23,296 22,831 26,244 17,820 12,343 17,295 22,803
Net cash per share on Balance sheet 88 111 109 125 92 66 93 123
Net cash as % of Stock price 7.6% 9.6% 9.4% 10.8% 8.0% 6.3% 8.8% 11.6%
Consolidated Cash Flow (Rs mn)
Cash flow from operations 4744 6164 7558 6641 7,330 9,180 10,618 11,636
Capex+Acqusitions 857 1009 1273 1181 (327) (800) (800) (800)
Free Cash flow 3887 5155 6285 5460 7,657 9,980 11,418 12,436
Source: Company, PL
Mphasis
October 21, 2018 9
Financials
Income Statement (Rs m)
Y/e Mar FY17 FY18 FY19E FY20E
Net Revenues 60,763 65,460 77,051 90,755
YoY gr. (%) (0.2) 7.7 17.7 17.8
Employee Cost 43,649 47,308 55,398 64,667
Gross Profit 17,114 18,152 21,654 26,088
Margin (%) 28.2 27.7 28.1 28.7
SG&A Expenses 3,347 3,334 3,753 4,538
Other Expenses - - - -
EBITDA 9,689 10,594 13,031 15,744
YoY gr. (%) 8.0 9.3 23.0 20.8
Margin (%) 15.9 16.2 16.9 17.3
Depreciation and Amortization 791 709 720 782
EBIT 8,898 9,885 12,311 14,962
Margin (%) 14.6 15.1 16.0 16.5
Net Interest 139 130 108 80
Other Income 2,385 1,620 1,416 1,200
Profit Before Tax 11,144 11,375 13,619 16,082
Margin (%) 18.3 17.4 17.7 17.7
Total Tax 3,076 2,900 3,372 4,181
Effective tax rate (%) 27.6 25.5 24.8 26.0
Profit after tax 8,068 8,475 10,247 11,901
Minority interest - - - -
Share Profit from Associate - - - -
Adjusted PAT 7,916 8,344 10,247 11,901
YoY gr. (%) 9.3 5.4 22.8 16.1
Margin (%) 13.0 12.7 13.3 13.1
Extra Ord. Income / (Exp) - - - -
Reported PAT 7,916 8,344 10,247 11,901
YoY gr. (%) 9.3 5.4 22.8 16.1
Margin (%) 13.0 12.7 13.3 13.1
Other Comprehensive Income - - - -
Total Comprehensive Income 7,916 8,344 10,247 11,901
Equity Shares O/s (m) 210 193 186 186
EPS (Rs) 37.6 43.2 54.1 64.0
Source: Company Data, PL Research
Balance Sheet Abstract (Rs m)
Y/e Mar FY17 FY18 FY19E FY20E
Non-Current Assets
Gross Block 4,105 4,304 5,104 5,904
Tangibles 1,890 2,050 2,850 3,650
Intangibles 2,215 2,254 2,254 2,254
Acc: Dep / Amortization 1,872 2,478 3,199 3,981
Tangibles 850 1,175 1,604 2,069
Intangibles 1,022 1,304 1,595 1,911
Net fixed assets 2,233 1,826 1,905 1,923
Tangibles 1,041 875 1,246 1,580
Intangibles 1,193 951 659 343
Capital Work In Progress 11 23 23 23
Goodwill 14,069 17,015 17,015 17,015
Non-Current Investments 2,508 4,397 4,826 5,226
Net Deferred tax assets 3,369 1,007 1,007 1,007
Other Non-Current Assets 6,331 6,077 6,177 6,277
Current Assets
Investments 22,701 14,651 9,651 9,651
Inventories - - - -
Trade receivables 6,279 8,116 7,839 7,824
Cash & Bank Balance 6,144 7,067 6,590 11,542
Other Current Assets 2,695 2,800 3,000 3,200
Total Assets 73,171 69,853 65,408 71,563
Equity
Equity Share Capital 2,104 1,933 1,860 1,860
Other Equity 59,419 52,885 48,383 54,548
Total Networth 61,523 54,818 50,243 56,407
Non-Current Liabilities
Long Term borrowings - - - -
Provisions - 573 573 573
Other non current liabilities 592 44 94 144
Current Liabilities
ST Debt / Current of LT Debt 2,602 3,899 3,899 3,899
Trade payables 3,878 5,024 5,004 4,994
Other current liabilities 4,406 5,097 5,197 5,147
Total Equity & Liabilities 73,170 69,853 65,408 71,563
Source: Company Data, PL Research
Mphasis
October 21, 2018 10
Cash Flow (Rs m)
Y/e Mar FY17 FY18 FY19E FY20E Year
PBT 11,144 11,407 13,619 16,082
Add. Depreciation 1,291 1,260 720 782
Add. Interest 131 101 108 80
Less Financial Other Income 2,385 1,620 1,416 1,200
Add. Other (1,962) (1,153) (1,323) (1,200)
Op. profit before WC changes 10,603 11,615 13,124 15,744
Net Changes-WC (1,045) (1,502) (572) (945)
Direct tax (2,917) (2,783) (3,372) (4,181)
Net cash from Op. activities 6,641 7,330 9,180 10,618
Capital expenditures (1,150) (313) (800) (800)
Interest / Dividend Income 773 200 1,323 1,200
Others 3,056 5,039 4,700 (300)
Net Cash from Invt. activities 2,679 4,925 5,223 100
Issue of share cap. / premium 3 (11,032) (9,885) -
Debt changes (1,976) 1,281 - -
Dividend paid (5,055) (3,949) (4,939) (5,736)
Interest paid (71) (98) (108) (80)
Others - - 50 50
Net cash from Fin. activities (7,100) (13,797) (14,882) (5,766)
Net change in cash 2,220 (1,543) (479) 4,952
Free Cash Flow 5,460 7,002 8,380 9,818
Source: Company Data, PL Research
Quarterly Financials (Rs m)
Y/e Mar Q3FY18 Q4FY18 Q1FY19 Q2FY19
Net Revenue 16,607 17,445 18,202 19,149
YoY gr. (%) 8.1 15.8 18.5 19.3
Raw Material Expenses 12,028 12,479 12,945 13,770
Gross Profit 4,579 4,966 5,257 5,379
Margin (%) 27.6 28.5 28.9 28.1
EBITDA 2,741 3,096 3,221 3,338
YoY gr. (%) 11.3 13.0 4.0 3.6
Margin (%) 16.5 17.7 17.7 17.4
Depreciation / Depletion 176 171 179 184
EBIT 2,565 2,925 3,042 3,154
Margin (%) 15.4 16.8 16.7 16.5
Net Interest - - - -
Other Income 312 410 382 441
Profit before Tax 2,877 3,335 3,424 3,595
Margin (%) 17.3 19.1 18.8 18.8
Total Tax 741 796 846 877
Effective tax rate (%) 25.8 23.9 24.7 24.4
Profit after Tax 2,136 2,539 2,578 2,718
Minority interest - - - -
Share Profit from Associates - - - -
Adjusted PAT 2,136 2,539 2,578 2,718
YoY gr. (%) 9.1 31.2 37.4 38.8
Margin (%) 12.9 14.6 14.2 14.2
Extra Ord. Income / (Exp) - - - -
Reported PAT 2,136 2,539 2,578 2,718
YoY gr. (%) 9.1 31.2 37.4 38.8
Margin (%) 12.9 14.6 14.2 14.2
Other Comprehensive Income - - - -
Total Comprehensive Income 2,136 2,539 2,578 2,718
Avg. Shares O/s (m) 193 193 193 193
EPS (Rs) 11.1 13.1 13.4 14.1
Source: Company Data, PL Research
Key Financial Metrics
Y/e Mar FY17 FY18 FY19E FY20E
Per Share(Rs)
EPS 37.6 43.2 54.1 64.0
CEPS 41.4 46.8 59.0 68.2
BVPS 292.4 283.6 270.2 303.3
FCF 25.9 36.2 45.1 52.8
DPS 36.4 19.7 22.0 25.6
Return Ratio(%)
RoCE 12.7 13.7 18.3 20.9
ROIC 19.6 21.7 27.1 31.6
RoE 13.2 14.3 19.5 22.3
Balance Sheet
Net Debt : Equity (x) (0.4) (0.3) (0.2) (0.3)
Debtor (Days) 38 45 37 31
Valuation(x)
PER 28.4 24.7 19.6 16.5
P/B 3.7 3.8 4.0 3.5
P/CEPS 40.2 45.5 57.2 66.2
EV/EBITDA 20.5 17.8 14.3 11.5
EV/Sales 3.3 2.9 2.4 2.0
Dividend Yield (%) 3.4 1.8 2.1 2.4
Source: Company Data, PL Research
Mphasis
October 21, 2018 11
Price Chart Recommendation History
No. Date Rating TP (Rs.) Share Price (Rs.)
1 27-Oct-17 Accumulate 740 704
2 10-Jan-18 Accumulate 740 712
3 26-Jan-18 Accumulate 900 822
4 13-Apr-18 Accumulate 900 907
5 11-May-18 Accumulate 1,050 998
6 10-Jul-18 Accumulate 1,150 1,100
7 08-Aug-18 Accumulate 1,250 1,150
8 05-Oct-18 Accumulate 1,250 1,148
Analyst Coverage Universe
Sr. No. CompanyName Rating TP (Rs) Share Price (Rs)
1 Cyient BUY 810 669
2 HCL Technologies BUY 1,255 1,077
3 Hexaware Technologies Hold 475 409
4 Infosys BUY 790 695
5 L&T Technology Services Accumulate 1,780 1,651
6 Mindtree BUY 1,140 978
7 Mphasis Accumulate 1,250 1,148
8 NIIT Technologies BUY 1,460 1,192
9 Redington (India) BUY 140 92
10 Sonata Software BUY 420 330
11 Tata Consultancy Services Accumulate 2,300 1,980
12 TeamLease Services Hold 2,740 2,219
13 Tech Mahindra BUY 885 721
14 Wipro Hold 350 325
15 Zensar Technologies BUY 330 297
PL’s Recommendation Nomenclature (Absolute Performance)
Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
416
631
845
1060
1275
Oct-
15
Ap
r-1
6
Oct-
16
Ap
r-1
7
Oct-
17
Ap
r-1
8
Oct-
18
(Rs)
Mphasis
October 21, 2018 12
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