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Target: ₹2,500
CMP: ₹1,989.20
Furloughs, lesser number of working days, deferred spending, and continued weakness in mortgage (uptick in interest rates in the US) would weigh on Mphasis’ (MPHL) sequential revenue growth trajectory in Q3. The management expects Q4 growth to be better than Q3 growth.
Exposure to the interest rate-sensitive portion of the business is in a low single-digit percentage of revenue; hence, the incremental impact will be limited. MPHL has exposure to home equity loans and home equity lines of credit (HELOC), which may come under pressure if home prices correct sharply.
Mphasis remains confident of delivering EBITM within the guided range of 15.25-17 per cent for FY23 (15.3 per cent in H1-FY23); however, the pace of margin expansion would be slower due to growth moderation.
We have revised our EPS estimates by 0.1 per cent to -2.7 per cent for FY23-25, considering the revised forex assumption for H2-FY23 (₹81.5/dollar vs. ₹80.25/dollar earlier) and lower growth assumptions. We have rolled forward our target price to December 2024 and lowered the target multiple to 22x (earlier 23x), factoring growth moderation. We maintain Buy with a target price of ₹2,500 at 22x December 2024 EPS (earlier ₹2,600), considering reasonable valuation, steady wallet share gains, and expansion in addressable markets with competency build-up.
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