Religare Capital has upgraded Mphasis (MPHL) to 'Hold' from 'Sell' after the company declared its second quarter results. The stock broker fixed price target at Rs 475.
Commenting on the results, Religare Capital said, ''MPHL's Q2 revenues shot up 4.1%QoQ (RCMLe: 2.9%) driven by 7.9% growth in the direct channel business. EBIT margins expanded 120bps QoQ to 13.9%, ahead of our estimate. Management is confident of maintaining industry-leading growth in direct channel, and raised its margin band guidance to 13-15%. This along with a declining HP share leads us to raise our FY17E and FY18E EPS by 5.3% and 6%.''
Commenting on the investment rationale, the stock broker said, ''Q2FY16 was the third straight quarter of strong recovery in MPHL's direct channel business, backed by good TCV wi's. While the HP business outlook is weak and MSA renewal in 2016 remains a risk, we note that HP contribution is declining (27% now). Thus, industry-leading growth in direct channel should help more than offset any decline in the HP business (RCMLe: -3% CQGR), and help MPHL deliver 7.7% and 8.9% dollar revenue growth in FY17/FY18.
We upgrade the stock from Sell to Hold with a revised Sep'16 TP of Rs 475 (Rs 410 earlier) set at 11x one year forward P/E (vs.10x) to reflect the better growth and margin outlook.''
Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.