Buy MphasiS Ltd With Target Of Rs 500

Buy MphasiS Ltd With Target Of Rs 500MphasiS released additional information pertaining to billing rate, revenue and profits for its three segments viz. Application, ITO and BPO. The stock reacted sharply downwards after the Q1FY11 results announcement due to bad performance and also because of discontinuation of certain disclosures.

All three segments Apps, ITO and BPO decline Applications (APO) revenue declined 9.5%QoQ, BPO revenue declined relatively lower with 5.4%QoQ and ITO declined .4%QoQ. The primary factor of revenue decline appears to be pricing decline post the new disclosures apart from one-time impact due to seasonal factor. Overall revenue for the quarter declined 8.5%QoQ as reported earlier. The management indicated during earnings call that the ~8.5%QoQ revenue decline was due to lower working days (3.5%QoQ), no milestone billing in Q1 vs. Q4 (3%QoQ), pricing impact 1%QoQ) and exchange rate impact (0.7%QoQ).

Offshore billing rate declines for Applications and ITO The additional set of information shows 5%QoQ decline in offshore billing rates for Application and ITO to USD19 per hour, for each segment. The billing rate for the BPO segment was USD7 per hour.

About revenue guidance The management has indicated that the request of investors regarding the guidance will be put for discussion in the Board meeting and then a call will be taken whether to release guidance from next quarter onwards after analyzing industry standards and its own ability to release such information.

Outlook and Valuations The management has released additional information which will be positive but the concerns on pricing and uncertainty of HP’s corporate strategy remains an issue. If there is a perspective to de-list MphasiS, then the fundamental performance will be difficult to asses and HP’s corporate actions will take a preference on the stock. Although, the management has indicated in past that the senior management get ESOPs of MphasiS so its performance should not be suffered. We maintain the ‘HOLD’ recommendation with a target price of Rs500 based on 12x FY11E EPS of Rs41.4.