Q4FY23 Review: Mphasis: Portfolio challenges continue, outlook cautious

2 May 2023 , 12:32 PM

Mphasis (MPHL) reported Q4FY23 revenue decline of 4.5% cc QoQ (-3.1% cc YoY), below IIFL Capital Services’ estimates of 1.7% decline. Revenue decrease was led by continued headwinds in the Mortgage segment (6.7% of Q4 revenues) and delayed ramp-ups of previously won deals. EBIT margins stood at 15.3% (flat QoQ), as revenue drop was offset by productivity improvement. MPHL expects margins to trend higher in FY24. Deal wins for the quarter were soft at USD309 million, (-8% TTM YoY), as management indicated longer decision-making cycles.

Outlook for Q1FY24 remains cautious, particularly for the BFS segment. However, management is confident of delivering strong growth for the Direct Channel (ex-Mortgage) in FY24, driven by healthy order book, pipeline and continued wallet-share gains with key clients. 

Analysts at IIFL Capital Services have lowered their FY24/25 revenue growth assumptions, leading to a reduction of up to 5% in their FY24/25 EPS estimates. Their 12–month target price has been reduced to Rs 1,820 (versus Rs 1,900), based on 17x 2-year forward EPS, given the lower growth profile.

Despite the stock trading attractively at 16.7x FY25 estimated P/E — a ~20% discount to peers — analysts at IIFL Capital Services believe a re-rating could happen once revenue drags are behind us. Client concentration remains a key risk.