Mphasis Q3 Results Review - Banking, Financial Services Picture Is Still Murky: Nirmal Bang

Nirmal Bang Report

Mphasis Ltd.’s Q3 FY24 revenue grew 1% QoQ but declined 6.3% YoY in USD terms and was weaker than our estimate of $ 411 by 2.2%. Acquisition Silverline delivered ~$15 million in revenue in the quarter.

Organic revenue declined ~2.8% QoQ against our estimated decline of 0.5% due to deeper furloughs. If you look across the sector, this will probably be the weakest growth QoQ.

Mphasis indicated that there would be reversal of the furlough impact in Q4 FY24 and some extra growth on top of it. That has led us to assume 3% QoQ growth in Q4 FY24. It has also indicated selective pick up in discretionary spending especially that connected with artificial intelligence related work.

Post Q3 FY24 we have tweaked our earning per share estimates down largely stemming from lower revenue estimates. We reiterate ‘Sell’ on Mphasis with a target price of Rs 1,825, based on 16 times FY26E EPS (as we roll forward valuation by three months). 16 times is at a 20% discount to our sector benchmark – Tata Consultancy Services Ltd.

The reason for continuing discount is because of its client and vertical concentration, as well as its low return on invested capital relative to TCS.

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