CoValue Markets

Mphasis: Gap in Price & Value

Tapping into strong customer networks and transforming digital service, Mphasis is an outlier with promising growth in the IT industry! Know its Value.

Mphasis is an IT service management company designing customized solutions and services for Digital Transformation, Infrastructure Technology, and application outsourcing services for businesses. 

Mphasis’ MOAT is its Wealth Management and Mortgage Services in BFSI, Solution Architecting, Strong Ecosystem, and 100+ Global Clients, which give it longevity, sustainable margins, and business growth.

Growth in this segment is mainly driven by three pillars Strategic Customers, Blackstone Portfolio, and New Client Acquisition group.

Mphasis’ growth is currently expected to be led by its core businesses of Banking and Financial Services as it eyes more business from new client firms that are part of the portfolio of Blackstone – its largest investor.

Revenue of Mphasis as of 31st March 2020 was INR 88.4 Billion with a Y-o-Y growth of 14.3%. The Operating Profit Margin stood at 16.3%. Mphasis registered revenue of INR 22.7 Billion in Q1 FY20 with YOY growth of 10.9% and an Operating Profit Margin of 15.6%.

In the Long Term, one can expect the Company to report a CAGR of 11% and improve its OPM to 17.5%. 

Earlier a Valuation was undertaken when the Price was INR 833 on 20th May 2020. Now, an Expectation Valuation is undertaken to analyze what is built in the Current Market Price and what should be its Value. Is there still a gap in Price and Value. The last trading price was INR 1200 on 24th August 2020, when this Valuation was undertaken.

Expectations Valuations

What’s in Price?

If one iterates the Value Drivers (Price Scenario) to equate the Current Market Price (CMP) of INR 1200, one can conclude that Mphasis Ltd has to compound its Sales by only 6% for the next 10 Years with an OPM of 16% to justify is current CMP.

What could be its Value?

If one further analyzes the Value Scenario of the App, one can say that if the Company compounds sales for the next 10 Years by 11% with a Target OPM of 17.5% – the Value under this Scenario will be INR 1794 Per Share. 

There is still a Gap in Price and Value.

Import Valuation to analyze/iterate all the Value Drivers to understand What is in Price and build your own assumptions to Compute Value.

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About the author

Amol katarnavre

Amol katarnavre

Amol Katarnavre is a Chartered Finance Analyst and a Certified Research Analyst.
He holds keen interest in valuing IT and FMCG companies.

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