The stock price of Mphasis tumbled on Monday, as brokerages remained largely bearish after the company’s last week hosted analyst meet that failed to convince them.
The stock of Mphasis closed at ₹2,325 on the NSE, down 2.81 per cent against the previous day’s close of ₹2,392.10. On the BSE, it closed at ₹2,328.85, down 2.63 per cent.
BFSI – a key risk
Despite the company remaining positive about its growth prospects, analysts expect Mphasis to face near-term challenges and the stock’s current valuation is not sustainable. Its higher dependence on the BFSI (Banking, Financial Services and Insurance) sector is a key risk, said analysts.
MPHL has the highest exposure in the BFS vertical compared to peers. Its growth in the vertical was impacted by the decline in Digital Risk and reduction in discretionary spending.
Motilal Oswal Financial said, “although management indicated an early sign of recovery in mortgage business with improving revenue visibility on its BFS portfolio, we maintain our Neutral rating on the stock factoring in the near-term weakness in Direct business.”
“We remain watchful of the macro recovery to see further progress in its DR business with expected volume recovery on its origination & refinance services,” it added.
ICICI Securities said uncertainty around recession and macro weakness has slowed down discretionary tech spending in Mphasis’ largest vertical BFS (about 50 per cent of revenue) with no signs of revival in the near term.
Margins: ‘Range-bound’
Mphasis’ margins have been range-bound, and it has not guided for margin improvement, whereas its mid-cap peers expect margins to improve over FY23-FY26. “We believe that Mphasis’ margins are range-bound because of lower negotiating power with clients in terms of offshore delivery reflected in higher onsite mix and high subcontractor costs,” I-Sec, which retained is Sell rating with a target price of ₹1,727, said.
According to JM Financial, while the company aspires to grow in the industry’s top-quartile over the long term, the near-term outlook remains uncertain. The company saw decision-making opening up in the past few months but feels it is far from normalcy.
However, domestic brokerage Anand Rathi is the most optimistic about the company. “Known for strength in BFSI (US, UK), Mphasis is expanding that ability to new regions (Canada, Europe, APAC) to accelerate growth. Besides, its client mining with top US banks is impressive (one $200m client, three of $150m) with the company having further headroom to grow.”
“We raise our estimates a bit, and TP from ₹2,720 to ₹2,810, reflecting optimism about a better performance,” it said.
