Stock To Buy: Emkay Global Expects 26% Surge In Shares Of Mid Cap IT Stock, Higher Q4 Growth

Leading brokerage firm Emkay Global expects 27% upside in the shares of renowned IT Software stock, MphasiS Ltd. The brokerage has assigned a target price of Rs 2500 apiece and sees a potential upside of 26%.

According to the analyst, "Furloughs, lesser number of working days, deferred spending, and continued weakness in mortgage (uptick in interest rates in the US) would weigh on the sequential revenue growth trajectory in Q3. Management expects Q4 growth to be better than Q3 growth."

1. MphasiS Ltd Stock Performance & Return

The multibagger stock's last trading price is Rs 1989 apiece with 52-week high at Rs 3476 apiece and 52-week low at Rs 1897 apiece, respectively. The stock has given return of 128% in last 3-years and 170% in last 5-years. In last 1-year, shares of MphasiS Ltd have declined 37%.

2. Mortgage Weakness And Seasonal Factors To Weigh On Near-Term Growth

Furloughs, lesser number of working days, deferred spending, and continued weakness in mortgage would weigh on sequential revenue growth in Q3. Management expects Q4 growth to be better than Q3 growth.

Management highlighted that exposure to the interest rate-sensitive portion of the business is in a low single-digit percentage of revenue and, thus, expects incremental impact on growth to be limited. MPHL has exposure to home equity loans and HELOC, which may come under pressure if US home prices correct sharply.

3. Confident To Operate Within The Guided Range Of 15.25-17% EBITM For FY23

Mphasis has guided for EBITM of 15.25-17% in the remaining quarters of FY23. Management highlighted that Q2 exit utilization was ~400bps higher than average utilization in Q2.

The company expects utilization to trend upward, but slower revenue growth may lead to gradual recovery. The company expects optimal utilization to be ~75%, factoring in the increase in fresher intake over the past few quarters.

4. Valuation

According to Emkay Global, "We have revised our EPS estimates by 0.1% to -2.7% for FY23E-25E, considering the revised forex assumption for H2FY23 (Rs81.5/$ vs. Rs80.25/$ earlier) and lower growth assumptions. We have rolled forward our TP to Dec-24 and lowered the target multiple to 22x (earlier 23x), factoring growth moderation. We maintain BUY with a TP of Rs2,500 at 22x Dec-24E EPS (earlier Rs2,600), considering reasonable valuation, steady wallet share gains, and expansion in addressable markets with competency build-up."

5. About MphasiS Ltd

Mphasis Limited came into existence on 10th August 1992. It is a global Information Technology (IT) solutions provider specializing in providing cloud and cognitive services applies next-generation technology to help enterprises transform businesses globally. Mphasis Group a global multicultural organisation headquartered in Bengaluru India specializes in providing a suite of application development and maintenance services infrastructure outsourcing services and business & knowledge process outsourcing solutions to clients around the world.

 

Disclaimer

The stock has been picked from the brokerage report of Emkay Global. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.