Mphasis Share Price Falls Over 4% on Mixed Q1 Results

On July 29, Mphasis shares fell over 4% following brokerage concerns about the stock's high valuations.

As of 1:40 PM IST, Mphasis share price were down 3.5%, trading at ₹2,924. Despite this decline, the stock has risen more than 17% in the last month, outperforming the Nifty 50's three% gain in the same timeframe. Before July 21, Mphasis had experienced six straight weeks of positive returns.

Nuvama noted that Mphasis share price had surged sharply by 18% in the last month and is currently trading at 27 times FY27 earnings, making the risk-reward profile less attractive. They reiterated a 'Hold' rating on the stock, expressing that the company's projection of above-industry growth for FY25 might be overly ambitious. Despite these concerns, Nuvama raised its target price for Mphasis to ₹3,030 from ₹2,340.

Emkay Global downgraded Mphasis to 'Reduce' from 'Add,' citing the stock's significant rise and current valuation as reasons for their cautious stance.

For Q1FY25, Mphasis reported a slight 0.1% QoQ revenue decline, missing growth expectations. The shortfall was mainly due to the completion of healthcare projects and a 7.5% QoQ decline in the "Others" segment, as per Emkay Global.

ICICI Securities pointed out that the expected turnaround in the BFSI sector did not materialize, with BFSI revenue growth at only 1.4% QoQ, down from 2.5% in Q4 FY24.

Additionally, the company's EBIT margin remained steady at 15% but fell short of analyst expectations. Management has set a margin guidance range of 14.6-16% for FY25.

While positive factors such as a strong deal pipeline and stable margins exist, the slower growth and delayed BFSI recovery led ICICI Securities to maintain a cautious outlook with a 'Sell' rating. They lowered their target price for Mphasis to ₹2,020 from ₹2,050.

Motilal Oswal acknowledged improvements in deal wins but warned that the current stock price limits further upside. They adjusted their revenue growth estimates for FY25 and FY26 downward by 190 and 90 basis points, respectively, and maintained a 'Neutral' rating with a target price of ₹2,800.

Mphasis, a midcap IT services firm, reported a 2.1% year-on-year (YoY) increase in net profit at ₹404.5 crore. Sequentially, profit rose by 2.9%. Revenue grew 4.6% YoY to ₹3,422.5 crore, with a marginal 0.2% increase sequentially.

The company's shares hit a 52-week high at ₹3,079.2 each, ending at ₹3,015, up 6% from the previous close, driven by strong orders and margin guidance of 14.6-16% for FY25.

“We are seeing a steady improvement in client demand. With the strength of our deal pipeline, we remain cautiously optimistic about continued improvements in our core markets,” said Nitin Rakesh, managing director (MD) and chief executive officer (CEO) of Mphasis.

The total contract value (TCV) wins for the quarter stood at $319 million, with 84% in new-gen services, according to the company’s press release. In Q4 FY24, TCV was $177 million.

“As AI-enabled platforms are adopted at scale and integrated into all deal types and solutions, we continue to see strong growth momentum in AI-powered deals by leveraging our ‘Savings led Transformation’ theme,” Rakesh added.

The operating margin for the firm grew 10 basis points (bps) QoQ but declined 40 bps YoY to 15% in Q1 FY25.

Mphasis Q1 Results Highlights

Mphasis announced their Q1 results on July 25, 2024. The company's revenue saw a year-on-year increase of 5.24%, while profit rose by 2.14%. In comparison to the previous quarter, revenue grew by 0.31% and profit increased by 2.87%.

The company's selling, general, and administrative expenses dropped by 1.48% quarter-on-quarter but rose by 5.31% year-on-year. Operating income experienced a quarter-on-quarter increase of 1.09% and a year-on-year rise of 2.81%. For Q1, the earnings per share (EPS) stood at ₹21.25, reflecting a year-on-year growth of 1.55%.

In terms of returns, Mphasis delivered 0.4% over the last week, 12.77% over the last six months, and 3.83% year-to-date. The company currently has a market capitalization of ₹53,788.53 crore, with a 52-week high of ₹2,966.8 and a 52-week low of ₹2,069.1.

As of July 27, 2024, among the 29 analysts covering Mphasis, 2 rated it as a Strong Sell, 9 as a Sell, 10 as a Hold, 3 as a Buy, and 5 as a Strong Buy. The consensus recommendation on that date was to Hold.