Adequate volume growth and stable pricing - Mphasis recorded in line Q4FY10 with USD revenue growth of 7.5%QoQ. INR revenue, however, grew only 5.2%QoQ to Rs13,455mn due to the rupee appreciation against USD. EBITDA margin dipped 86bpsQoQ to 23.8% on the back of higher SG&A costs. PAT increased 4.8%QoQ to Rs2,842mn led by forex gain and higher interest income. It reported an EPS of Rs13.46.

APO outperforms, ITO disappoints on margins - Revenue of the APO and ITO segments grew 5.8% and 6.5%QoQ respectively. The BPO segment seems to have bottomed out and revenue from this segment was flat. ITO margins, however, disappointed; they dipped 460 bpsQoQ to 34.9%; APO and BPO margins improved 145bps and 268bpsQoQ to 30.9% and 17.4% respectively.

Robust growth in APAC; large client win in telecom - US and Europe grew 2.8% and 7.5%QoQ. APAC outperformed and surged 30.5%QoQ. US is expected to emerge strong in the next few quarters. BFSI, Transport and Healthcare were among the high-growth verticals, growing 2.6%, 7.5% and 7.5%QoQ respectively. Telecom surged 55%QoQ on the back of a large client win in Q4FY10.

Outlook - Pricing re-negotiation, strong hiring and higher volumes from non HP business - Mphasis is expected to renegotiate prices with HP in various segments, which would enhance growth in FY11. The company has 1,600 and 800 open positions in the APO and ITO segment. Volumes from non-HP business are expected to improve on new client wins.

MphasiS has performed well during this fiscal despite price cuts in the HP-driven business. We expect volume-led growth ahead of peers within the mid-cap space. MphasiS also has better operating margins and higher return ratios compared with peers.

The stock is trading at 10.8x FY12E EPS. We maintain `BUY' recommendation with target price of Rs780 based on 14xFY12E.