Mphasis Shares Hit A Record High After Q1 Earnings Beat

Shares of Mphasis Ltd. jumped to a record high after the IT services provider won record deals, and saw its revenue and net profit rise in the quarter ended June.

The company’s revenue increased 5.9% sequentially to Rs 2,690.8 crore, while net profit rose 7% to Rs 339.6 crore, according to an exchange filing.

• Operating income rose 5% to Rs 427 crore.

• Margin contracted to 15.9% from 16.1% in the previous quarter.

“We have had a great start to FY22 with record deal wins of $505 million in our direct business, the highest ever in the history of Mphasis,” chief executive officer Nitin Rakesh said in the filing.

Rakesh, in an interview to BloombergQuint, said, “This quarter, all our top clients that are over $50 million in revenue for us have actually grown. This is not an easy feat to achieve, given the variability in client spend. We’ve also added two new $100-million-plus clients this quarter, taking the total clients to four in that category. Growth has been very broad-based.”

Segment-wise, Mphasis’ direct revenue rose 10.8% sequentially, and 9.8% in constant currency terms. The company’s revenue from its DXC vertical declined 17.7% over the preceding quarter on a reported basis, and fell 18.1% in constant currency terms.

“The investments we have made in our business model over the years have been driving growth and differentiation for us and our financial performance for the quarter is the result of it,” Rakesh said. “We expect our direct business to have industry-leading growth for FY22. Every quarter may or may not have the same growth, but we maintain strong growth for the full year.”

Rakesh, however, said this was a “difficult quarter from an operational standpoint”.

But according to Chief Financial Officer Manish Dugar, the company has delivered on the 15.5-16% margins promised. “This has happened even with hikes given to employees, new hiring, vaccination and other one-time costs pertaining to the Covid-19 pandemic.”

Shares of Mphasis rose as much as 12.3%, the most in eight months, to a record high of Rs 2,692.35 apiece in early trade on Friday. Of the 33 analysts tracking the company, 25 have a ‘buy’ rating, five suggest a ‘hold’ and three recommend a ‘sell’, according to Bloomberg data. The average of 12-month consensus price targets implies a downside of 19.5%.

Here’s what brokerages made of Mphasis’ Q1:

Motilal Oswal

• Maintains ‘buy’ rating with a target price of Rs 2,360.

• Stellar growth in the direct channel was encouraging. However, the strong momentum was partially offset by an 18.1% decline in the DXC business.

• DXC now contributes only 9% to overall revenue compared to 20% a year ago.

• Would revisit estimates post the earnings call. Await further clarity on the near-term outlook, DXC channel, and margin.

Dolat Capital

• Maintains ‘reduce’ rating at a target price of Rs 1,910 apiece.

• Mphasis’ result beat estimates on all counts, its total contract value wins momentum continues.

• The trailing 12-month growth in contract wins on a year-on-year basis is now at 64.9% (one of the highest). “Thus, giving us comfort on the sustained strong performance of direct business.”

• Continue to remain cautiously optimistic on the stock and may review estimates post the earnings call.

Watch the interview with Mphasis’ management here: