Mphasis revenues grew by 4% q-o-q to Rs6.6 billion for Q408. However, revenue from its mainstay application segment went down by 18 bps q-o-q due to delay in commencement of various projects.
Its nascent segment ITO continued to grow strongly by 15% q-o-q. BPO business increased 10.4% q-o-q on the back of the improved utilization rate.
Despite a sluggish hiring in application business for the last two quarters, the blended utilisation rate has dipped from 73% in Q208 to 69% in Q408. Therefore, we have downgraded our margins estimates by around 2% to 18.4% for FY09.
The company has strong deal pipeline with over $1 billion of order book. We expect robust volume growth in the medium term. However, we have lowered our revenue estimates for FY09 by 2.1% to Rs31.2 billion on account of sluggish hiring in recent quarters and stable billing rate.
At the CMP of Rs229.2, the stock is currently trading at a forward P/E of 14.3x and 11.1x for FY09E and FY10E, respectively, which is at a discount of 4.2% over the industry multiple. Based on DCF valuation, we have reduced our target price to Rs242. We downgrade our rating to HOLD.