Motilal Oswal Recommends To Buy This Technology Stock For 29% Return

Although the equity market in India is quite bearish now, the brokerage firm Motilal Oswal recommended investors to buy the stocks of Mphasis (MPHL), for a 29% upside, in 1 year. "MPHL's Direct business has been consistently delivering exceptional growth, with a 2-year 3QFY22 CAGR of 27.6%, which is among the best in our coverage universe," the firm said.

Target Price

The Current Market Price (CMP) of Mphasis, is Rs. 3025. Motilal Oswal has estimated a Target Price for the stock at Rs. 3900. The company is expected to offer a 29% upside, in 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 3025
Target Price	Rs. 3900
1 year return	29.00%

Company performance

The company's revenue grew 7.8% QoQ CC. Growth was led by TMT (+14.5%) and BFS (+10.2% QoQ), while Insurance, Logistics and Transportation, and Others grew 8.9%, 5.3%, and -0.7%, respectively. MPHL's 3QFY22 performance was led by a 9% CC QoQ growth in the Direct business, while DXC again declined and now accounts for 5.4% of revenue. EBIT margin, adjusted for one-time M&A charge, stood at 15.9% (+10bp QoQ) despite an 80bp drag from stock options. It reported a net new deal TCV of US$ 335m in 3QFY22.

Comments by Motilal Oswal

About the stock's potential Motilal Oswal said, "With the management reiterating its industry-leading growth guidance in the Direct business, we expect stand-out growth in the Direct business to continue (FY22-24E CAGR of 19.6%). MPHL should benefit from a growing deal pipeline, deal TCV, as well as a recent announcement from its top client (BFS, 11% of revenue) for a multi-year expansion in technology spend. We have increased our FY22-24E EPS estimate by 1-5% to factor in higher growth in the Direct business and a positive margin commentary. The company added around 2.6k employees and plans to ramp up fresher hiring, which hints at good visibility."

About the company

Mphasis work with design and architecture to deliver a portfolio of next-generation offerings and services that blend our deep domain expertise with cutting-edge technology. Their domain contextualized offerings are embedded in deep tech and they are powered forward by the Mphasis Tribes and Squads model. Their cross-functional teams are focused on evolving next-generation offerings. The reported EBIT margin was flat QoQ, despite a 100-150bp impact from utilization, and an 80bp impact from stock options. Margin tailwinds include fresher hiring, improvement in pricing, and cost leverage.

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Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.