RESULTS REVIEW 3QFY20 07 FEB 2020

Mphasis BUY

HDFC securities Institutional Research is also available on Bloomberg ERH HDF <GO>& Thomson Reuters

Direct Core-Digital Risk offsets DXC softnessWe maintain BUY on Mphasis following a strong Direct Core-Digital Risk performance. Growth drivers in Direct Core are intact, but DXC-HP risks persist. Our TP of Rs 1,010 values Mphasis at 14x Dec-21E EPS (at 5-yr avg vs. 16x earlier) resetting target valuations to adequately reflect risk-reward. HIGHLIGHTS OF THE QUARTER Rev came at USD 318mn, 4.0/12.6% QoQ/YoY CC

driven by Direct core (57.7% of rev) growth at 4.5/14.7% QoQ/YoY CC and Digital Risk growth at 11.1% QoQ hitting the USD 30mn mark (highest in 6-qtr). Growth in Direct Core was driven by a combination of strategic accounts, new logos (80% YoY growth) and Blackstone portfolio (12 logos and 7% of Direct Core rev growing at 50% YoY). Factored Direct Core growth at 14.8% CAGR over FY20-22E (15.1% in FY20E) and Digital Risk growth at 9.1% CAGR over FY20-22E (7.1% in FY20E).

DXC-HP channel continued to decelerate as Mphasis’ value prop of service transformation, solution framework and geo diversification is offset by potential change in spend priorities by DXC. Our moderate

growth assumptions for DXC-HP (2.5% CAGR over FY20-22E) channel factors the increased uncertainty following the leadership change, business divestment (though limited overlap) and in-sourcing risks. In 3Q, DXC channel posted 0.1/3.2% QoQ/YoY CC.

Growth was broad-based within verticals with BFS (ex-T1) at 6.7% QoQ (Digital Risk), Logistics & Transportation at 8.4% QoQ, Insurance at 4.3% QoQ and Mfg at 4.8% QoQ. EBIT margin stood at 16.2%, +15bps QoQ. Margin was supported by better-mix (Emerging industries), higher fixed-price and staggered impact of wage increase.

STANCE

Mphasis’ growth profile is supported by traction in Direct Core, sustainable recovery in Digital Risk (cross-sell) even as the FY17-19 DXC-HP growth delta fades. Strong deal trajectory (USD 189mn TCV NN in 3Q) largely in new-gen services, strong traction in T2-10 accounts and new logo/Blackstone portfolio (2 logos in T20) are expected to drive growth. Expect 10.3/12.1% USD rev/EPS CAGR over FY20-22E.

Financial Summary YE March (Rs bn) 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%) FY18 FY19 FY20E FY21E FY22E Net Revenues 22.77 19.71 15.5 21.58 5.5 65.46 77.31 87.96 99.26 110.48 EBIT 3.69 3.11 18.8 3.47 6.5 9.92 12.48 14.09 15.18 16.98 APAT 2.94 2.78 5.6 2.73 7.4 8.46 10.73 11.20 12.23 13.84 Diluted EPS (Rs) 15.8 14.9 5.6 14.7 7.4 45.4 57.6 60.1 65.7 74.3 P/E (x) 20.8 16.4 15.7 14.4 12.7 EV / EBITDA (x) 14.7 12.2 9.7 8.7 7.6 RoE (%) 14.6 20.0 20.4 20.3 20.9

Source: Company, HDFC sec Inst Research # Consolidated

INDUSTRY IT CMP (as on 07 Feb 2020) Rs 937 Target Price Rs 1,010 Nifty 12,098 Sensex 41,142 KEY STOCK DATA Bloomberg MPHL IN No. of Shares (mn) 186 MCap (Rs bn) / ($ mn) 175/2,447 6m avg traded value (Rs mn) 172 STOCK PERFORMANCE (%) 52 Week high / low Rs 1,063/828 3M 6M 12M Absolute (%) 3.6 (2.9) (8.4) Relative (%) 2.4 (15.0) (19.6) SHAREHOLDING PATTERN (%) Sep-19 Dec-19 Promoters 52.22 52.20 FIs & Local MFs 13.68 13.93 FPIs 28.78 28.52 Public & Others 5.32 5.35 Pledged Shares 0.00 0.00 Source : BSE

Apurva Prasad apurva.prasad@hdfcsec.com +91-22-6171-7327 Amit Chandra amit.chandra@hdfcsec.com +91-22-6171-7345

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Quarterly Financials Snapshot (Consolidated) Particulars (Rs bn) 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%)

Sales USD mn 317.8 282.7 12.4 304.7 4.3

Net Sales 22.77 19.71 15.5 21.58 5.5 Employee Expenses 13.95 11.91 17.1 13.20 5.7 SG&A Expenses 4.55 4.49 1.2 4.33 5.1 EBITDA 4.27 3.31 29.1 4.05 5.4 Depreciation 0.58 0.20 193.4 0.58 (1.2)

EBIT 3.69 3.11 18.8 3.47 6.5

Other Income 0.36 0.51 (28.7) 0.35 2.8 Interest Cost 0.19 0.04 442.9 0.22 (12.4) PBT 3.87 3.58 7.9 3.60 7.2 Tax 0.93 0.80 16.0 0.87 6.7 RPAT 2.94 2.78 5.6 2.73 7.4 EO Items (Adj For Tax) - - NA - NA APAT 2.94 2.78 5.6 2.73 7.4 Source: Company, HDFC Sec Inst Research Margin Analysis (%)

3QFY20 3QFY19 YoY (bps) 2QFY20 QoQ (bps)

Employee Expenses % Net Sales 61.3 60.4 85 61.2 10 Gross Margin % 38.7 39.6 (85) 38.8 (10) EBITDA Margin (%) 18.8 16.8 198 18.8 (2)

EBIT Margin (%) 16.2 15.8 45 16.1 15

Tax Rate (%) 24.0 22.4 167 24.2 (13) APAT Margin (%) 12.9 14.1 (121) 12.7 23 Source: Company, HDFC Sec Inst Research

Revenue came at USD 318mn, +4.3/12.4% QoQ/YoY led by Direct Core (57.7% of rev) growth at +4.5/14.7% QoQ/YoY CC EBIT margin stood at 16.2%, +15bps QoQ supported by better-mix (Emerging industries) and higher fixed-price

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Service-Line Revenue Split (% of revenue) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Application Development 26.3 26.2 27.5 27.7 29.8 31.4 33.2 33.4 32.2 Application Maintenance & Other Services 33.1 31.2 30.2 34.4 35.8 33.5 32.1 30.3 28.6 Infrastructure Management Services 13.2 15.2 14.8 14.2 12.7 12.7 12.2 12.6 13.0 Service / Technical Help Desk 7.6 7.4 8.2 6.5 6.7 7.1 7.5 7.2 7.9 Knowledge Processes 10.8 11.7 11.4 9.8 7.4 7.7 7.5 8.5 9.1 Transaction Processing Service 7.0 6.9 6.6 6.3 6.2 6.3 6.3 6.6 7.8 Customer Service 1.4 1.3 1.2 1.0 1.1 1.1 1.1 1.1 1.2 License Income 0.6 0.1 0.1 0.1 0.2 0.2 0.1 0.3 0.2 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Company, HDFC Sec Inst Research Revenue Growth By Service-Line (QoQ, %) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Application Development 13.8 4.4 6.9 3.4 10.4 8.7 7.5 3.3 0.6 Application Maintenance & Other Services (0.7) (0.9) (1.8) 17.1 6.8 (3.5) (2.5) (3.1) (1.6) Infrastructure Management Services 1.7 21.1 (0.6) (2.1) (8.4) 3.5 (1.9) 5.3 7.9 Service / Technical Help Desk 9.8 2.8 12.5 (19.3) 7.0 9.1 6.5 (0.8) 14.9 Knowledge Processes (7.7) 13.1 (0.9) (11.5) (22.7) 6.7 (0.6) 17.3 11.2 Transaction Processing Service 7.3 2.6 (2.2) (2.4) 1.6 3.9 2.6 7.9 22.6 Customer Service (11.3) (1.8) (7.8) (13.6) 11.3 5.9 1.6 (4.0) 16.4 License Income 376.0 (82.1) 6.3 21.2 95.4 (14.1) (26.7) 144.6 (26.0) Total 3.8 5.0 1.7 2.6 2.6 3.2 1.8 2.6 4.3 Source: Company, HDFC Sec Inst Research

Key win in 3Q included F100 US customer for platform-led service transformation

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Revenue-Split By Geography (% of revenue) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Americas 80.2 79.1 79.7 80.1 78.3 77.6 78.8 79.2 77.5 EMEA 9.8 11.0 10.0 10.8 11.2 11.4 10.7 10.1 11.5 RoW 3.6 3.6 3.8 3.2 4.9 5.8 5.5 5.4 5.9 India 6.4 6.4 6.4 5.8 5.6 5.2 5.0 5.3 5.1 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Company, HDFC Sec Inst Research

Revenue Growth By Geography (QoQ, %) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Americas 4.0 3.5 1.8 3.9 0.2 2.2 3.4 3.2 2.0 EMEA 7.2 18.0 6.0 (3.4) 6.8 5.0 (4.9) (2.6) 18.6 RoW (6.2) 3.0 (11.3) 7.2 54.4 23.5 (3.8) (0.2) 14.7 India 2.7 5.0 1.3 (5.6) (1.9) (4.7) (1.4) 8.3 0.2 Total 3.8 5.0 1.7 2.6 2.6 3.2 1.8 2.6 4.3 Source: Company, HDFC Sec Inst Research Revenue Segment By Channel (% of revenue) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Direct International 70.3 69.0 69.4 68.0 67.3 68.2 68.4 69.3 70.0 DXC/HP channel 26.0 27.0 27.4 28.3 29.1 28.4 28.4 27.6 26.6 Others 3.7 4.0 3.2 3.7 3.6 3.4 3.2 3.2 3.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Company, HDFC Sec Inst Research Revenue Growth By Channel Segment (QoQ, %) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Direct International 3.8 3.0 2.3 0.5 1.7 4.4 2.0 4.0 5.5 DXC/HP channel 3.3 9.0 2.9 6.0 5.6 0.6 1.9 (0.5) 0.5 Others 7.6 12.6 (17.0) 18.1 (1.5) (1.0) (4.5) 1.2 12.3 Total 3.8 4.9 1.7 2.6 2.7 3.1 1.8 2.6 4.3 Source: Company, HDFC Sec Inst Research

Within geos, EMEA/RoW led the growth and strong growth outlook for Europe Direct International deal wins were higher by 8.6% QoQ at USD 189mn with ~87% of TCV comprising deals in New-gen services DXC-HP channel (26.6% of rev) was flat QoQ (0.1/3.2% QoQ/YoY CC) Digital Risk revenue at USD 30mn and strong near term outlook supported by interest rate cycle and cross-sell + new wins

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Revenue-Split By Vertical (% of revenue) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Banking and Capital Market 47.7 47.3 47.0 46.0 44.1 44.3 44.7 45.8 45.5 Emerging Industries 25.1 24.2 24.5 25.7 27.3 26.4 27.1 26.8 27.5 Tech, Communication & Ent. 14.4 16.9 17.2 17.0 16.8 17.3 16.6 16.1 15.7 Insurance 12.8 11.6 11.3 11.3 11.8 12.0 11.7 11.2 11.2 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Company, HDFC Sec Inst Research Revenue Growth By Vertical (QoQ, %) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Banking and Capital Market 1.9 4.0 1.3 0.4 (1.8) 3.8 2.6 5.3 3.6 Emerging Industries 6.9 1.0 3.0 7.6 9.0 (0.0) 4.3 1.6 7.1 Tech, Communication & Ent. 6.0 23.4 3.6 1.3 1.4 5.8 (2.3) (0.1) 1.7 Insurance 2.9 (4.6) (1.6) 2.8 7.5 4.5 (0.8) (1.1) 4.3 Total 3.8 5.0 1.7 2.6 2.6 3.2 1.8 2.6 4.3 Source: Company, HDFC Sec Inst Research Revenue Split By Top Clients (% of revenue) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20

Top client 12.3 13.3 13.0 13.8 13.8 13.9 15.0 15.1 14.0

Top 5 clients 39.9 41.0 41.0 42.3 45.3 46.5 48.0 49.3 48.2

Top 10 clients 56.3 57.4 56.0 57.0 58.1 59.4 61.1 60.3 60.2 Source: Company, HDFC Sec Inst Research Revenue Growth By Top Clients (QoQ, %) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20

Top client 3.7 13.7 (0.8) 8.7 2.7 3.7 10.4 3.1 (2.9)

Top 5 clients 1.1 7.7 1.7 5.9 9.8 6.0 5.2 5.2 1.9

Top 10 clients 5.6 6.9 (0.8) 4.5 4.5 5.5 4.7 1.4 4.1 Source: Company, HDFC Sec Inst Research

Within verticals, growth was largely broad-based primarily led by Emerging industries (27.5% of rev), Insurance (11.2% of rev) and BFS ex-T1 supported by Digital Risk Within Emerging industries, Travel & Transportation (13.9% of rev) and Mfg (5% of rev) posted strong growth at 8.4% and 4.8% QoQ respectively BFS outlook positive supported by diversified micro vertical portfolio including Consumer banking (30.1% of BFS), Corporate banking (14.1% of BFS), IB (8% of BFS), Mortgage (23.1% of BFS) and Wealth management & brokerage (24.8% of BFS) T1 account declined 2.9% QoQ as compared to 6.3% CQGR over the prior 10-qtrs, while T2-10 grew 6.4% QoQ, Non top accounts’ growth expected to outpace T1 ahead

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Revenue Segment By Onsite-Offshore Mix (% of revenue) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Onsite 55.6 55.8 57.5 58.0 57.1 58.2 58.2 58.2 58.1 Offshore 44.4 44.2 42.5 42.0 42.9 41.8 41.8 41.8 41.9 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Company, HDFC Sec Inst Research Revenue Growth By Onsite-Offshore Mix (QoQ, %) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Onsite 4.6 5.3 4.8 3.5 1.1 5.1 1.9 2.6 4.1 Offshore 2.9 4.6 (2.1) 1.4 4.6 0.6 1.7 2.6 4.6 Total 3.8 5.0 1.7 2.6 2.6 3.2 1.8 2.6 4.3 Source: Company, HDFC Sec Inst Research Headcount metrics (Nos) 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 Onsite headcount 4,479 4,526 4,551 5,217 5,633 5,421 5,719 5,936 6,095 - Application Services 2,392 2,456 2,550 2,991 3,539 3,277 3,246 3,309 3,298 - ITO Services 1,106 1,120 1,087 1,312 1,210 1,293 1,522 1,547 1,399 - BPO Services 981 950 914 914 884 851 951 1,080 1,398 Offshore headcount 16,594 16,541 16,847 17,096 17,365 17,849 18,575 19,820 19,985 - Application Services 8,228 8,281 8,680 8,962 9,286 9,742 10,312 10,995 10,980 - ITO Services 3,062 3,121 3,075 2,994 2,843 2,723 2,789 2,867 2,927 - BPO Services 5,304 5,139 5,092 5,140 5,236 5,384 5,474 5,958 6,078 Sales and Marketing 300 278 270 270 292 293 282 280 280 General and Administration 897 894 898 895 925 921 923 927 929 Total Headcount 22,270 22,239 22,566 23,478 24,215 24,484 25,499 26,963 27,289 Net additions 114 (31) 327 912 737 269 1,015 1,464 326 Utilisation (%) - Application Services 82 86 85 85 85 87 85 84 83 - ITO Services 89 94 93 93 91 93 96 96 94 - BPO Services 90 92 94 91 93 91 87 89 91 Source: Company, HDFC Sec Inst Research

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Key Assumptions Particulars FY16 FY17 FY18 FY19 FY20E FY21E FY22E

DXC/HP channel Revenue growth (%) (26.1) (11.0) 21.6 21.8 6.7 3.1 2.0 Direct International Revenue growth (%) 13.5 2.6 7.4 10.4 13.5 14.9 12.4

Total USD revenue growth (%) (2.0) (3.4) 10.7 13.1 11.2 11.6 9.0

USD/INR rate 65.6 67.1 64.5 69.9 70.5 71.5 73.0

EBIT margin (%) 12.8 14.6 15.1 16.1 16.0 15.3 15.4 Source: Company, HDFC Sec Inst Research Change In Estimates Particulars Earlier estimates Revised estimates % change FY21E Revenue (USD mn) 1,366 1,388 1.6 Revenue (Rs bn) 97.66 99.26 1.6 EBIT (Rs bn) 15.17 15.18 0.1 EBIT margin (%) 15.5% 15.3% (24)bps EPS (Rs) 65.5 65.7 0.2 FY22E Revenue (USD mn) 1,499 1,513 1.0 Revenue (Rs bn) 109.40 110.48 1.0 EBIT (Rs bn) 17.21 16.98 (1.3) EBIT margin (%) 15.7% 15.4% (36)bps EPS (Rs) 75.0 74.3 (1.0) Source: HDFC sec Inst Research

Factored Direct Core growth at 14.8% CAGR over FY20-22E (vs. 15.1% in FY20E) and Digital Risk growth at 9.1% CAGR over FY20-22E (vs. 7.1% in FY20E) DXC-HP growth factored at 2.5% CAGR over FY20-22E Margin headwinds with higher mix from Direct Core-Digital Risk as compared to DXC led earlier Strong FCF yield (top quadrant in Tier-2 IT), Cash at ~12% of M-cap and >30% RoIC to support valuations

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Peer Set Comparison

Company MCap (Rs bn)

CMP (Rs)

TP (Rs) RECO

EPS (Rs) P/E (x) RoE (%) FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E

TCS 7,988 2,129 2,025 NEU 83.9 86.5 93.6 104.7 25.4 24.6 22.7 20.3 36.1 35.7 37.2 39.7 Infosys 3,273 771 850 BUY 37.1 38.2 43.5 48.1 20.8 20.2 17.7 16.0 24.3 25.4 28.2 28.3 Wipro 1,390 244 235 NEU 15.8 17.4 18.3 20.0 15.4 14.0 13.3 12.2 17.3 17.7 17.3 16.2 HCL Tech 1,626 599 665 BUY 37.3 39.0 41.7 48.2 16.1 15.4 14.4 12.4 26.0 23.2 21.0 20.7 TechM 743 818 910 BUY 48.9 47.5 52.5 59.9 16.7 17.2 15.6 13.7 22.0 20.2 20.5 20.5 Tier-1 IT Median 16.7 17.2 15.6 13.7 24.3 23.2 21.0 20.7

LTI 333 1,914 2,090 BUY 87.1 85.6 101.6 120.7 22.0 22.3 18.8 15.9 34.6 28.0 28.4 28.7 Mphasis 175 937 1,010 BUY 57.6 60.1 65.7 74.3 16.4 15.7 14.4 12.7 20.0 20.4 20.3 20.9 L&T Tech 174 1,672 1,790 BUY 67.8 76.0 86.6 103.7 24.7 22.0 19.3 16.1 32.0 29.4 28.4 28.5 Mindtree 149 902 830 NEU 44.1 38.5 48.0 63.3 20.5 23.4 18.8 14.3 24.9 18.3 22.7 26.0 Hexaware * 112 376 450 BUY 19.6 21.6 24.5 28.3 19.2 17.4 15.3 13.3 26.5 24.7 24.1 24.0 Cyient 55 491 490 NEU 43.6 36.3 40.9 46.0 11.3 13.5 12.0 10.7 19.5 15.3 15.9 16.2 Zensar 38 165 177 NEU 14.2 10.8 12.9 17.1 11.6 15.3 12.8 9.6 17.6 11.9 12.9 15.3 Persistent 54 705 745 BUY 47.8 47.1 50.0 59.6 14.7 15.0 14.1 11.8 15.7 14.4 15.2 16.2 Tata Elxsi 64 1,035 NA NR 46.6 39.5 50.7 58.9 22.2 26.2 20.4 17.6 34.5 24.3 26.6 26.1 Sonata 36 343 422 BUY 23.7 28.5 31.6 36.3 14.5 12.0 10.9 9.4 35.1 36.1 35.3 35.7 Intellect 22 165 255 BUY 7.7 2.6 7.3 11.2 21.6 64.5 22.6 14.7 11.1 3.3 8.7 12.1 eClerx 23 635 NA NR 61.7 52.0 53.7 57.0 10.3 12.2 11.8 11.1 17.6 14.0 14.7 14.6 Majesco 11 408 655 BUY 18.3 19.9 30.0 36.7 22.2 20.5 13.6 11.1 8.4 7.9 11.0 12.2 HGS 15 700 NA NR 84.6 100.3 110.9 129.5 8.3 7.0 6.3 5.4 8.5 13.1 13.3 13.7 Mastek 11 445 510 BUY 40.4 40.9 45.1 52.9 11.0 10.9 9.9 8.4 16.1 13.7 13.6 14.4 Tier-2 IT Median 16.4 16.1 14.1 11.8 19.5 15.3 15.9 16.2 Source: HDFC sec Inst Research, *Dec YE, NR is Not Rated

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Income Statement (Consolidated) YE March (Rs bn) FY18 FY19 FY20E FY21E FY22E Revenues (US$ mn) 989 1,119 1,244 1,388 1,513 Growth (%) 10.7% 13.1% 11.2% 11.6% 9.0% Net Revenues 65.46 77.31 87.96 99.26 110.48 Growth (%) 7.7% 18.1% 13.8% 12.9% 11.3% Employee Expenses 39.00 46.31 54.23 61.04 68.07 SG&A Expenses 15.84 17.76 17.38 20.45 22.55 EBITDA 10.63 13.24 16.34 17.77 19.86 EBITDA Margin (%) 16.2% 17.1% 18.6% 17.9% 18.0% EBITDA Growth (%) 9.7% 24.6% 23.4% 8.7% 11.7% Depreciation 0.71 0.76 2.25 2.60 2.88 EBIT 9.92 12.48 14.09 15.18 16.98 EBIT Margin (%) 15.1% 16.1% 16.0% 15.3% 15.4% Other Income (Including EO Items) 1.62 1.77 1.46 1.78 2.13 Interest 0.13 0.17 0.71 0.65 0.65 PBT 11.41 14.07 14.85 16.31 18.46 Tax (Incl Deferred) 2.90 3.34 3.65 4.08 4.61 RPAT 8.38 10.74 11.20 12.23 13.84 APAT 8.46 10.73 11.20 12.23 13.84 APAT Growth (%) 4.8% 26.9% 4.3% 9.2% 13.2% Adjusted EPS (Rs) 45.4 57.6 60.1 65.7 74.3 EPS Growth (%) 4.8% 26.9% 4.3% 9.2% 13.2%

Source: Company, HDFC sec Inst Research

Balance Sheet (Consolidated) YE March (Rs bn) FY18 FY19 FY20E FY21E FY22E

SOURCES OF FUNDS Share Capital - Equity 1.93 1.86 1.86 1.86 1.86

Reserves 52.89 50.64 55.57 61.10 67.78

Total Shareholders’ Funds 54.82 52.50 57.44 62.96 69.65

Total Debt 3.90 5.43 5.43 5.43 5.43

Net Deferred Taxes (1.01) (0.79) (0.79) (0.79) (0.79)

Long Term Provisions & Others 0.97 1.25 1.42 1.60 1.78

TOTAL SOURCES OF FUNDS 58.68 58.39 63.50 69.20 76.07

APPLICATION OF FUNDS Net Block 1.83 2.13 2.57 3.15 3.84

Goodwill 17.01 19.58 19.58 19.58 19.58

Other Non-current Assets 7.23 6.91 6.91 6.92 6.92

Total Non-current Assets 26.09 28.64 29.09 29.67 30.36

Cash & Equivalents 24.96 20.34 23.71 27.46 32.27

Debtors 8.12 9.55 10.87 12.27 13.65

Other Current Assets 9.63 14.36 16.34 18.44 20.52

Total Current Assets 17.74 23.91 27.21 30.70 34.17

Creditors 5.02 7.85 8.93 10.08 11.22

Other Current Liabilities & Prov. 5.10 6.66 7.58 8.55 9.52

Total Current Liabilities 10.12 14.51 16.51 18.63 20.74

Net Current Assets 7.62 9.40 10.70 12.07 13.44

TOTAL APPLICATION OF FUNDS 58.68 58.39 63.50 69.20 76.07 Source: Company, HDFC sec Inst Research

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Cash Flow (Consolidated) YE March (Rs bn) FY18 FY19 FY20E FY21E FY22E Reported PBT 11.28 14.07 14.85 16.31 18.46 Interest expenses 0.13 0.17 0.71 0.65 0.65 Depreciation 0.71 0.76 2.25 2.60 2.88 Working Capital Change (1.50) (1.42) (1.30) (1.38) (1.36) Tax Paid (2.78) (3.43) (3.65) (4.08) (4.61) OPERATING CASH FLOW ( a ) 7.23 9.50 11.76 12.77 14.41 Capex (0.33) (2.55) (1.60) (1.57) (1.87) Free cash flow (FCF) 6.90 6.95 10.16 11.19 12.55 Investments - - - - - Non-operating Income 1.20 1.35 1.10 1.34 1.60 INVESTING CASH FLOW ( b ) 0.88 (1.20) (0.50) (0.24) (0.27) Debt Issuance/(Repaid) 1.30 1.53 - - - Interest Expenses (0.13) (0.17) (0.71) (0.65) (0.65) FCFE 8.07 8.31 9.45 10.54 11.89 Share Capital Issuance 0.03 0.10 - - - Dividend/ Buyback (15.01) (14.60) (6.26) (6.71) (7.16) FINANCING CASH FLOW ( c ) (13.81) (13.15) (6.97) (7.36) (7.81) NET CASH FLOW (a+b+c) (5.71) (4.85) 4.30 5.17 6.33 Closing Cash & Equivalents 24.96 20.34 23.71 27.46 32.27

Source: Company, HDFC sec Inst Research

Key Ratios (Consolidated) YE March FY18 FY19 FY20E FY21E FY22E PROFITABILITY (%) GPM 40.4 40.1 38.3 38.5 38.4 EBITDA Margin 16.2 17.1 18.6 17.9 18.0 APAT Margin 12.9 13.9 12.7 12.3 12.5 RoE 14.6 20.0 20.4 20.3 20.9 RoIC (or Core RoCE) 23.4 29.6 31.0 31.5 33.4 RoCE 14.5 19.8 20.8 20.6 21.1 EFFICIENCY Tax Rate (%) 25.7% 23.7% 24.6% 25.0% 25.0% Fixed Asset Turnover (x) 3.1 3.1 3.3 3.5 3.7 Debtors (days) 76 87 87 87 87 Other Current Assets (days) 54 68 68 68 68 Payables (days) 28 37 37 37 37 Other Current Liab & Provns (days) 28 31 31 31 31 Cash Conversion Cycle (days) 73 87 87 87 87 Debt/EBITDA (x) 0.5 0.5 0.4 0.4 0.4 Net D/E (x) (0.4) (0.3) (0.3) (0.3) (0.4) Interest Coverage (x) 76 72 20 23 26 PER SHARE DATA (Rs) EPS 45.4 57.6 60.1 65.7 74.3 CEPS 47 62 72 80 90 Dividend 20 27 28 30 32 Book Value 284 282 308 338 374 VALUATION P/E (x) 20.8 16.4 15.7 14.4 12.7 P/BV (x) 3.3 3.3 3.1 2.8 2.5 EV/EBITDA (x) 14.7 12.2 9.7 8.7 7.6 OCF/EV (%) 10.6% 8.8% 8.2% 9.2% 10.7% FCF/EV (%) 10.4% 7.2% 7.2% 8.1% 9.5% FCFE/Mkt Cap (%) 9.9% 7.4% 6.1% 6.8% 7.7% Dividend Yield (%) 2.1% 2.9% 3.0% 3.2% 3.4%

Source: Company, HDFC sec Inst Research

MPHASIS: RESULTS REVIEW 3QFY20

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Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 1-Apr-19 991 BUY 1,370 9-Apr-19 977 BUY 1,370

28-May-19 952 BUY 1,330 5-Jul-19 982 BUY 1,360

27-Jul-19 930 BUY 1,310 27-Aug-19 985 BUY 1,310 22-Sep-19 973 BUY 1,320 4-Oct-19 937 BUY 1,180

15-Nov-19 907 BUY 1,140 7-Jan-20 875 BUY 1,165 7-Feb-20 937 BUY 1,010

RECOMMENDATION HISTORY

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HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel,Mumbai - 400 013 Board : +91-22-6171 7330 www.hdfcsec.com

MPHASIS: RESULTS REVIEW 3QFY20

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