The company’s Q2FY09 consolidated operational results were above expectations. Revenues grew by about 13% q-o-q, well above estimates. Continued client traction helped.
MphasiS has seen no instances of any major re-structuring at client end. It has benefited in vendor rationalization programs. EDS revenues at 40% of overall revenues, provide good visibility.
The management has re-iterated delays in receiving and initiation of new projects. However, there have been no project cancellations as yet.
Also, there is still no clarity on proposed reorganization of businesses between MphasiS and HP’s India operation. This is a source of concern.
Going forward, we expect consolidated PAT to rise to Rs.4.26 billion in FY09 (October end). On enhanced equity, EPS expected to be Rs20. We note that revenue growth has been pretty volatile over past three quarters and may continue to be so in the next few quarters as well.
Our DCF based fair price works out to Rs215, indicating decent upside of about 24%. In our opinion, there can be further upsides from the current levels in case there is an open offer from EDS at a higher price, if and when it materializes.
However, pending greater clarity over demand prospects and the business allocation with HP’s captive India operations, we recommend an ACCUMULATE.
We expect the stock performance to be soft till greater demand visibility emerges. A prolonged recession in user economies and a sharper-than-expected rupee appreciation are key risks to our estimates and recommendation.