Sunday, November 22, 2009

[Investors] Mphasis Co Update ; Downgrade one notch further to HOLD on full valuations ; HOLD ; Target: Rs 650


Mphasis has remained our top pick in the IT Services sector for >2 yrs now with our 'Best Demand' thesis reinforced by superlative revenue growth (note Mphasis will close Oct'09 with ~20% YoY revenue growth) which has driven a sharp rerating and a 300%+ run up in the stock over the past 12 months. Although we increase our Oct '10 US$ revenue/ EBITDA/EPS estimates by ~5%/6.1%/14.5% to US$ 1,050 mn (+19.3% YoY growth, revenue growth estimates would still be the highest in our coverage universe), Rs 13 bn, Rs 49 respectively, we believe that current valuations at ~15x Oct'10E earnings leave little room for upside surprise (albeit in our view risks are on the downside from a possible INR appreciation, adverse price concessions from the business sourced via the parent channel etc).

Further we also build in a scenario analysis trying to estimate a Best Case Oct'10 EPS scenario of ~Rs 53 which assumes (1) 5% QoQ growth over Sept'09E quarterly revenues of US$ 240 mn(+3.8% QoQ) for the next 4 quarters, (2) 27% operating margins (downside risk to margin assumptions on a/c of wage increments, currency appreciation, note that Mphasis has the highest sensitivity to US$/INR rate given the higher proportion of offshore revenues as compared with peers at ~75%, every 1% move in US$/INR impacts mgns by ~55-60 bps) and (3) effective tax rates of 7% for FY10 (risks on the tax front hinge on the upside) (further we assume an exchange rate assumption of Rs 47/$). Valuations at ~14xBest Case Oct'10 EPS in our view leave little room for positive surprises. (refer calculation below).We thereby cut our rating one notch to HOLD (V/s ACCUMULATE earlier) with a revised 1 yr forward price target of Rs 650, based on 12x Oct '11E earnings of Rs 53.8 (V/s Rs 560 earlier). We clearly see downside risk to stock price in the near term and would look at better entry points.

--
Safe Harbor:
The information contained and provided on this Website provides Investment advice for the education of investors. The posts are an information service only. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. We do not assume any responsibility or liability resulting from the use of such information, judgment and opinions for Trading or Investment purposes.
 
You received this message because you are subscribed to the Google Groups "Investors Please Listen !" group.
To post to this group, send email to investorspleaselisten@googlegroups.com
To unsubscribe from this group, send email to
investorspleaselisten+unsubscribe@googlegroups.com For more options, visit this group at http://groups.google.com/group/investorspleaselisten?hl=en

No comments:

Blog Archive

Life Insurance | Health Insurance | Auto Insurance


Investors Please Listen !

 
More than 100 kinds of Insurance products from more than
20 companies under one roof.



Call: 9818269396 
investorspleaselisten@in.com
www.investorspleaselisten.blogspot.com

 

 

Safe Harbor:

The information contained and provided on this Website provides Investment advice for the education of investors. The posts are an information service only. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. We do not assume any responsibility or liability resulting from the use of such information, judgment and opinions for Trading or Investment purposes.
Powered by Olark
Advertising Learn to Invest