Mphasis, a leading Indian IT firm, has been facing a challenging time in the past year as its shares witnessed a substantial decline in value. Over this period, the stock has corrected by 45.75%, sliding from ₹3,312 apiece to the current market price of ₹1,797, which is worse than the Nifty IT Index's decline of 21.22% during the same period.
The significant drop has caused the stock to reach its lowest level in the last 2 years, and it is trading at a discount of 50.88% from its record high of ₹3,659, which it last reached on October 18, 2021.
After the collapse of Silicon Valley Bank on March 10th, the company's stock experienced a correction of approximately 18.10% over the following 12 trading sessions.
This was due to concerns over the company's exposure to the bank. However, on March 29th, the company clarified in an exchange filing that it had no exposure to the three recently collapsed US lenders.
"We are continuing to focus on servicing our clients in this heightened environment of volatility and transaction volumes. Mphasis has no business with or exposure to Silicon Valley Bank, Signature Bank, or Silvergate Capital, either as a client or banker."
"Our business from US regional banks makes a low single-digit percentage contribution to the overall revenue," said Nitin Rakesh, Chief Executive Officer and Managing Director, Mphasis.
Domestic brokerage firm ICICI Securities turned bullish on the stock following clarification on its exposure to US banks.
"We believe the correction is overdone given Mphasis’ recent disclosure that its overall exposure to regional banks in US is in the low single digits and that it has a much higher exposure to larger banks, which could be net beneficiaries of deposit movements from small regional banks," said the brokerage.
Also, Mphasis’ exposure to the mortgage business will probably bottom out in Q4 FY23, with more vulnerable parts like refinancing already at very low levels, it added.
Mphasis is currently trading at an 18x 1-year forward P/E multiple with an FY23E-FY26E EPS CAGR of 14%. Given attractive valuations and the recent correction, the brokerage has upgraded the stock to 'buy' from 'add' rating, with a revised 12-month target price of ₹2,061 apiece, implying a 14.70% potential upside.
"We value Mphasis at 18x FY26E EPS of ₹128 discounted back by WACC of 12%. We are expecting a modest 5.5% CC revenue growth in FY24E, followed by strong double-digit growth of 15.4% and 12.9% in FY25E and FY26E, said ICICI Securities.
In addition to that, HDFC Securities also keeps its "buy" rating on the stock with a target price of ₹2,450 apiece.
At the current juncture, the company is not experiencing negative signals from large banks. Within BFSI, Mphasis is more strategic in the segments of retail banking, commercial banking, and credit cards, said the brokerage.
JPMorgan's tech budget is flat and taking more spending in-house; Citigroup and Wells Fargo have increased their tech budgets by 5–6%, and it’s 7-8% for BoFA.
Mphasis is among the top three vendors for its T10 clients. Q4 FY23 has no furlough impact in its TMT vertical, but there’s some slowness, including in marquee logos acquired via Blink, the brokerage added.
29 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
