Tier-II. near-term outlook for IT Service Provider Mphasis Ltd. is not very encouraging. This is despite the company’s deal winning momentum and stable deal pipeline. The relatively higher exposure to the mortgage segment is seen as bearish, especially in the backdrop of rising interest rates in the US. In addition, the company’s management has cautioned against some vulnerabilities such as spending easing by some customers and furloughs by others.
In an interaction with analysts at Emkay Global Financial Services Ltd, the company’s management said that it is not experiencing a slowdown in the demand environment. Note that the company’s management has guided for Ebit (earnings before interest and tax) margins to be in the range of 15.25-17% for all four quarters of FY13. The medium-term growth in margins will be aided by operating leverage, employee pyramid improvements and offshoring.
Nonetheless, the brokerage house is taking precautions. Emkay Global said in a report on 23 August, “Healthy deals focused on TCV wins and revenue conversions due to proactive big deal origination, continued expansion in efficiencies, customer mining, new logo additions, and steady growth in deal size and tenure.” focused.” However, weakness in mortgage business and holiday in some accounts may weigh on revenue growth in the near future.
Meanwhile, in Q1FY23, the company saw a 2.4% sequential growth in its revenue in constant currency in its direct business.
The stock of Mphasys has lost around 35 per cent so far this calendar year, which is more than the 26 per cent fall of the sector index Nifty IT. In addition to the above challenges, this stock also requires investors to monitor developments in its DXC business, which has been an overhang for the stock in recent times.
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