Q3FY24 Review: Mphasis: Headwinds continue, revenue conversion is key

5 Feb 2024 , 11:12 AM

Mphasis (MPHL) reported Q3 net revenue of USD401 Million, up1.2% cc sequentially (organic down 2.6% cc sequentially), below IIFL estimates of +5.4%, due to higher-than-expected furloughs, continued weakness in BFS and lower revenues from Silverline acquisition (US$15 Million). EBIT margins stood at 14.9% (down 60 basis points sequentially), as part of the impact of acquisition (down 110 basis points) was offset by continued productivity improvements. Deal win TCV was soft at USD241 Million (up12% TTM over the year-ago quarter), due to slower decision-making. Given the order backlog and stabilization of the Mortgage business, MPHL is confident of delivering sequential growth in Q4, over and above the impact of seasonality. Analysts at IIFL Securities have lowered their FY24-26 EPS estimates by up to 4%, due to the miss in the quarter and weak deal closures. They continue to build in organic growth acceleration from Q4. Their 12-month Target Price has reduced to ₹2,100 (was ₹2,200), based on 20X (unchanged) 2YF P/E. The stock is trading at 28x/25x FY25/FY26 estimated P/E, at a ~20% discount to midcap peers, which they believe is justified currently, given the growth differential. Analysts at IIFL Securities believe consistent delivery is required for re-rating.