30 July 2015

1QFY16 Results Update | Sector: Technology

Mphasis
BSE SENSEX
27,705
Bloomberg

S&P CNX
8,422
MPHL IN

Equity Shares (m)

210.1

M.Cap.(INR b)/(USD b)

63.6/1.4

52-Week Range (INR)

473/331

1, 6, 12 Rel. Per (%)

6/21/-15

Avg Val(INRm)/Vol000

52/129

Free float (%)

39.5

CMP: INR413

2015 2016E 2017E

Sales

57.9

60.2

65.6

8.7

9.0

10.5

EBITDA
PAT
EPS (INR)

6.8

7.3

8.3

32.3

34.9

39.5

EPS Gr. (%)*

-8.6

8.2

13.2

BV/Sh. (INR)

12.8

13.1

14.0

RoE (%)

13.1

13.0

15.1

RoCE (%)

49.6

53.7

50.6

P/E (x)

12.8 11.8 10.4

EV/EBITDA(x) 7.5
6.4
5.1
Annualized values for 5M FY14E
Estimate change
TP change
Rating change

Neutral

Digital Risk rebound drives second consecutive quarter of growth

Financials & Valuation (INR b)

Y/E Mar

TP: INR400 (-3%)

Rebound in Digital Risk: Run-rate in Digital Risk moved up from ~USD22m two
quarters ago to ~USD41.3m in 1QFY16, driving the second consecutive quarter of
sequential growth at the overall company level. Excluding Digital Risk, the Direct
Channel business has remained flat in each of the last two quarters
Revenues in line, marginal profitability miss: MPHLs 1QFY16 revenue grew 2.7%
QoQ to USD234.5m, in line with our estimate of USD234.5m. EBITDA margin was
flat at 14.1%, which was below our estimate of 15%, as S&M increased 70bp QoQ
to 6.6%. Excluding exceptional items, PAT was flat QoQ at INR1.74b compared
with our estimate of INR1.86bmarginally lower due to lower margin.
Deal TCV remains in the USD70m-80m range: The company signed deals of TCV
USD76m during the quarter; this was the third consecutive quarter when the
TCV of deals stayed in the USD70m-80m range. We believe more deals wins are
needed to improve growth rates.
EBIT margin to be 12-14% in 1HFY16: MPHL estimates its 1HFY16 EBIT margins to
be in the 12-14% band as the company will continue to invest for revenue
growth. The levers to improve margins in FY16 are: [1] Shifting toward fixed-price,
transaction-based business model; [2] increasing growth in high-margin areas; [3]
reducing lower-margin revenues.
Valuation and view: We expect revenue CAGR of 4.7% and EPS CAGR of 10% over
FY15-17E. While valuations at 11.8x/10.4x FY16E/17E are at a steep discount to
peers (particularly after factoring the cash balance), upside will be a function of
turnaround in revenue growth, which will need a revival in HP channel. Our target
price of INR400 discounts FY16E EPS by 10x. Neutral.

Ashish Chopra (Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424

Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Mphasis

Revenues: Digital Risk rebound continued driving sequential growth

n

MPHLs 1QFY16 reported revenue grew 4.7% QoQ to INR14.9b, in line with our
estimate of 4.4% growth in INR revenues. USD revenues grew 2.7% QoQ to
USD234.5m, in line with our estimate of 2.3% growth
Growth was driven by second consecutive quarter of significant uptick in
revenues at Digital Risk. The segment grew ~23.2% QoQ as per our analysis to
~USD38m the management too cited that growth at Digital Risk was 20%+
QoQ. This was on the back of 37.4% QoQ growth in 4QFY15, rebounding from
32.4% decline in 3QFY15.
HP Channel declined 5.5% QoQ in dollar terms to USD67m. The managements
outlook remains of continued decline for now, with little visibility of a
turnaround anytime soon.
nd

Exhibit 1: Revenue growth was helped by 2 consecutive quarter of Digital Risk growth

Mar-15

Jan-14

Oct-13

Jul-13

Jan-13

-3.1 -4.2
-5.4

2.7

Jun-15

1.1

Mar-15

-4.5

-2.1 -1.9

226 228 234

0.8

Dec-14

11.0 1.0

250 239

172
Oct-12

Jul-12

-5.2

263 265 260 255

Sep 14

237

Growth (%)

Jun 14

-1.6

-2.0 -1.8

Apr-12

Oct-11

Jul-11

-3.8

Apr-11

252 248

2.9

Jan-12

4.4

Revenue (USD m)

Apr-13

279 287 276 271

266

Mar 14*: 2M quarter, Jun-14 growth number normalized for comparison Source: MOSL, Company

1QFY16 Profitability: PAT marginally below estimate before exceptional

item
n

n
n

30 July 2015

EBITDA margin was sequentially flat at 14.1%, which was below our estimate of
15%. Flat margin was despite tailwind from reduction of 120bp of bad debt
provisioning of the previous quarter to negligible impact in the current quarter
Gross margin was 26.1%, -70bp QoQ, in line with our estimate of 26.3%; but SGA
was marginally higher at 11.8%, v/s estimate of 11.4%.
Excluding exceptional items, PAT was flat QoQ at INR1.74b, compared to our
estimate of INR1.86b, the miss largely explained by lower operating profitability
during the quarter.
During the quarter, there was INR12.6m post tax exceptional loss arising out of
proposed sale of domestic BPO business, and another INR49m on account of
proposed early ramp down of operations in certain domestic BPO operations.

Mphasis
Exhibit 2: Downward trend in margins to be arrested in 2HFY16

14.7 15.0

17.6
16.2 16.7
15.5 14.7 15.8 15.3 15.0 15.1 14.8

Jun 14

Mar-15

Jan-14

Oct-13

Jul-13

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

Apr-11

Jan-11

6.4 5.9
5.2 5.4 5.9 6.0 4.9 5.1 5.1 6.0
5.2 4.1
3.9 5.0 4.9

13.0 13.0 12.5 12.7

7.9

6.6
5.2 5.9

Jun-15

16.0

Mar-15

18.6

Dec-14

16.5

S&M as % of Sales

Sep 14

EBIT Margin (%)

Source: MOSL, Company

Takeaways from Management Commentary

n

USD76m TCV deals signed: MPHL has announced USD76m TCV of deal wins in
direct organic business during the quarter. This is on the back of FY15 total deal
wins to TCV of USD264m. All the deals won during the quarter are new orders
and do not include renewals. Of the total wins 64% come from focus areas of
digital and GRC within the Direct International operations. The duration of deals
is 3-4 years.
Digital Risk should continue growth: This was the second consecutive quarter of
USD8m incremental sequential revenue additions to Digital Risk. The growth
was led by ramp up in past orders, while MPHL cited that it had won new
business in this segment too, to continue driving growth in future quarters.

Exhibit 3: Rapid growth in Digital Risk led to fall in proportion of declining HP revenues to 29%
Digital Risk Rev. (USD m)

Revenue mix (%)

38.0

64

64

65

69

71

55

54

52

46

41

40

37

36

36

36

35

31

29

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Mar-14

Jun 14

Sep 14

Dec-14

Mar-15

Jun-15

Mar 14*: 2 Month quarter

38.0

22.4

Jun-15

64

30.8

Mar-15

63

34.0

Dec-14

60

Jan-14

59

Oct-13

54

29.6

Jul-13

48

Apr-13

46

Jul-12

34.2

45

Source: Company, MOSL

n

30 July 2015

46.25 45.5

Sep 14

42.5

Jun 14

Direct Channel

2M
Mar 14

HP Channel

Direct International revenues to grow above industry in FY16: MPHL expects to

grow its Direct International business, 64% of overall revenues, to outgrow
industry average in FY16. The start to the year, deal wins and pipeline all drive
confidence towards that end. Impact from sell-off in domestic BPO employees is
~4% of revenues, with FY16 seeing more than two quarters of that in the
numbers.
Margin to recover in 2HFY16: MPHL expects margins to start expanding from
2HFY16, that despite its wage hikes becoming effective from 3QFY16. The
impact from domestic BPO contracts sold is only ~20-30bp on overall company
margins. Multiple efficiency levers will help drive the improvement.
3

Mphasis

Change in estimates
n
n

Our revenue estimates for FY16/17 are down by 2.5%/1% to factor the
discontinuation of domestic BPO contracts.
We currently model operating margin uptick from 2HFY16 in accordance with
the management guidance. That drives 58bp improvement in our FY17 EBIT
margin estimate of 14.5%. FY16 estimate of 13.4% is 40bp lower on 1Q miss and
expectation of range-bound margin in 2Q.
Consequently, our EPS estimate for FY16 is down by 2.5% and for FY17 up by
3.6% at INR34.9 and INR39.5 respectively.

Exhibit 4: Change in estimates

Revised
FY16E
FY17E
INR/USD
USD Revenue - m
EBIT Margin (%)
EPS - INR

63.6

64.0

Earlier
FY16E

FY17E

Change (%)
FY16E
FY17E

63.6

64.0

0.0%

0.0%
-1.0%

942

1,025

967

1,035

-2.5%

13.4

14.5

13.8

14.0

-43bp

58bp

34.9

39.5

35.8

38.2

-2.5%

3.6%

Source: MOSL, Company

Valuation and view

n

Our FY17 revenue estimate stands at USD1,025m compare with FY13 (YE
October) annual revenues of USD1,025m. Digital Risk acquisition was expected
to drive potential turnaround, which has remained very volatile and
necessitated action at MPHL to improve / change portfolio to drive growth.
Net cash at MPHL is INR113/share, or 27% of the companys market cap, and
seeing steady accumulation across quarters. We estimate this to increase to
INR150/share by FY17, or 36.5% of current valuation. That, along with payout
policy of 50% (which implies dividend yield of 5% in FY17 and 4.2% in FY15) will
remain as key support to valuations.
We estimate MPHL to stem the decline in revenues and post growth at a CAGR
of 4.2% over FY15-17E. Our EPS CAGR during this period is 10.7%. While
valuations at 11.8x/10.4x FY16E/17E are much discounted to peers (particularly
after factoring the Cash Balance), the rate of decline within HP channel remains
a risk. We currently factor 20%/11% decline in FY16/17. Also, for an average
tenure of 3-4 years, MPHL may need to up its quarterly deal TCV band of USD7080m, in order to deliver on its growth targets.
Revenue growth confidence would be the single most important factor to
change our stance on the stock, as margins too, will not rebound lest revenues
turnaround. Our target price of INR435 discounts FY17E EPS by 11x this is also
akin to 10x the operating profit added to current net cash. We maintain our
Neutral rating on the stock.

Key Triggers
Turnaround in Digital Risk
Stem of decline in HP Channel
Pick up in quarterly deals TCV

30 July 2015

Mphasis

Key risks
Continued volatility in Direct Channel emerging markets
Failure to grow Mature market direct channel at 1.5x industry growth
Pricing and margin negatives in pursuit of growth outside HP channel

29

6.0
15.7

11.5

3.6

3.0

Source: Company, MOSL

Apr-09

Jan-08

Oct-06

Jul-15

Apr-14

Jan-13

1.6

3.0
1.5

0.0
Oct-11

Jul-10

6.4
Apr-09

Oct-06

Jul-05

Jan-08

13.5

Avg(x)

Jul-15

9.0

Peak(x)
Min(x) 9.8

Apr-14

41

17

PB (x)
Median(x)

12.0

48.2

Jan-13

Avg(x)

Oct-11

Peak(x)
Min(x)

Jul-05

PE (x)
Median(x)

53

Exhibit 6: MPHL 1-year forward PB chart

Jul-10

Exhibit 5: MPHL 1-year forward PE chart

Source: Company, MOSL

Exhibit 7: Comparative valuation

Company

Mkt cap Rating

TP
(USD b)
(INR)
Mphasis
1.4 Neutral
400
Mindtree
1.7 Neutral
1,250
KPIT Tech
0.3 Neutral
120
Hexaware
1.3 Sell
225
Persistent Sys.
0.8 Neutral
665
NIIT Tech* FY15 EPS excludes exceptional loss

30 July 2015

Upside
(%)
5.6
-1.4
12.1
-18.6
1.2

EPS (INR)
FY16E
FY17E
35.8
38.2
70.6
88.5
9.7
13.3
13.5
16.9
37.6
47.4

P/E (x)
FY16E
FY17E
11.5
10.8
18.0
14.3
11.0
8.1
20.5
16.3
17.5
13.9

RoE (%)
FY15-17E CAGR (%)
FY16E
FY17E USD rev.
EPS
13.4
13.6
4.6
8.8
26.9
28.0
15.4
17.7
13.9
16.3
4.4
5.9
30.4
35.9
15.1
26.1
20.1
22.0
16.0
14.2
Source: Company, MOSL

Mphasis

Story in charts
Exhibit 8: HP Revenues have been declining rapidly
HP Revenues

Exhibit 9: Now compounded with volatility in digital risk

Direct Channel (%)

% Change

HP Channel (%)

-5.9
-13.8

65.9

56.5

34.1

43.5

FY11

FY12

44.4

36.8

34.5

55.6

63.2

65.5

FY13

5MFY14

FY15

-17.0
-19.9
-22.4
777

731

FY10

FY11

325

586

455

157

FY12

FY13

5MFY14

FY15

5MFY14* comparison normalized to be comparable

Exhibit 10: India revenue will reduce further after sale of

BPO operations
55.1

21.4

35.3

14.7
5MFY14

-8.6

32.3
FY15

Jun-15

37.5

FY13

Mar-15

-5.8

FY12

1455

Dec-14

39.4
FY11

1462

Sep 14

48.6
FY10

1479

Jun 14

-4.8
-19.0
43.2
FY09

-0.5

1359

1218 -10.4

-1.1

876
Mar-15

19.8

1097

-6.5

% Change
-0.1

Jan-14

18.6

EPS
12.5

925

1229
Apr-13

% Change

Oct-13

-28.9

1728
Jan-13

989

7.0

1615
Oct-12

Jul-13

-9.3
1780
Jul-12

-19.5

India Revenue

Exhibit 11: and portfolio issues have dragged EPS lower

year after year

5MFY14* comparison normalized to be comparable

Exhibit 12: Incremental S&M spend will limit margin

expansion
EBIT Margin (%)
5.4
4.2

4.4

4.6

S&M (%)
6.1
5.2

Exhibit 13: Digital Risk revenues have rebound sharply

could be a driver of growth
Digital Risk Rev. (USD m)

6.2

46.25 45.5
42.5
34.2

38.0
29.6

38.0

34.0

30.8

FY11

FY12

FY13

5MFY14

FY15

Jun-15

FY10

Mar15

FY09

Dec-14

13.3
Sep 14

15.2

Jun 14

15.3

2M
Mar 14

16.4

Jan-14

16.4

Oct-13

20.6

Jul-13

21.7

Apr-13

22.4

Source: Company, MOSL

30 July 2015

Mphasis
Exhibit 14: Operating metrics
Operating metrics
Oct-12 Jan-13 Apr-13
Vertical Contribution (%)
Banking and Capital Markets
26.2
24.7
35.9
Insurance
11.9
12.0
11.6
IT, Commn & Entmt
26.1
24.8
21.0
Emerging Industries
35.7
38.5
31.5
Total
100
100
100
Revenue by Project Type (%)
TTM
86
86
89
FPP
14
14
11
Revenue by Delivery Location (%)
Onsite
33
31
42
Offshore
67
69
58
Secondary Market Segment (%)
HP Channel
54
52
46
Mature Market - Direct Channel
35
36
47
Emerging Market - Direct Channel
11
12
7
Service Type (%)
App Maintenance
33
33
31
App Development
26
24
21
Customer Service
6
6
5
Service/Technical Help Desk
4
4
3
Trasaction Processing Service
6
5
5
Infra Management Services
25
27
20
Knowledge Processes
1
1
14
License Income
1
1
1
CLIENT METRICS
Client wins
BCM
7
3
6
Insurance
2
2
3
ITCE
6
3
4
Emerging industries
7
14
8
Total
22
22
21
Client wins Channels
Direct Channel
14
14
10
HP Channel
8
8
11
Total Client additions
22
22
21
Clients Contributing More than
USD1m
130
126
128
USD5m
39
40
42
USD10m
25
23
22
USD20m
9
9
9
Clients - Direct Channel
USD1m
56
55
62
USD5m
15
15
19
USD10m
10
9
10
USD20m
5
5
6
Clients - HP Channel
USD1m
74
71
66
USD5m
24
25
23
USD10m
15
14
12
USD20m
4
4
3

30 July 2015

Jul-13 Oct-13 Jan-14 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

39.7
11.5
17.8
31.0
100

41.8
12.1
16.2
29.9
100

41.4
12.9
16.1
29.7
100

41.5
12.1
16.3
30.1
100

40.7
12.8
16.8
29.7
100

41.9
13.4
16.9
27.8
100

39.6
14.9
16.9
28.6
100

41.8
15.3
15.6
27.3
100

44.3
15.5
14.3
25.8
100

87
13

86
14

87
13

86
14

87
13

86
14

83
17

86
14

88
12

45
55

47
53

47
53

46
54

45
55

46
54

43
57

47
53

49
51

41
54
5

40
56
4

37
57
5

36
57
7

36
56
8

36
58
7

35
56
9

31
60
9

29
64
7

31
22
5
3
5
17
17
0

31
22
5
3
5
16
18
1

29
20
5
3
5
18
18
1

26
23
5
3
5
19
18
0

28
22
5
3
5
20
16
0

29
24
6
3
6
18
15
0

29
25
6
2
7
20
11
1

29
25
6
2
7
17
14
1

29
25
5
2
7
15
17
1

4
1
3
8
16

3
4
1
9
17

2
3
0
6
11

2
0
2
4
8

9
1
1
5
16

1
0
2
7
10

2
0
0
1
3

4
1
2
5
12

5
2
0
3
10

10
6
16

8
9
17

10
1
11

4
4
8

11
5
16

5
5
10

3
0
3

8
4
12

10
0
10

122
44
22
10

117
41
21
11

110
42
20
11

112
43
19
11

110
42
17
10

104
41
17
10

100
42
17
8

102
39
19
9

98
36
20
8

58
20
12
7

59
20
12
8

54
21
12
7

57
25
13
8

57
25
12
7

52
25
12
7

49
25
12
6

57
25
14
7

58
24
15
6

64
24
10
3

58
21
9
3

56
21
8
4

55
18
6
3

53
17
5
3

52
16
5
3

51
45
40
17
14
12
12
5
5
2
2
2
Source: MOSL, Company

Mphasis

Financials and valuations

Key Assumptions
Y/E March
INR/USD Rate
Revenues (USD m)
Total Delivery Headcount
Net Addition
Per Capita Productivity (USD)
HP Channel Revenue (%)
Direct Channel Revenue (%)

Oct 10
45.8
1,104
39,962
5,330
27,630
71.2
28.8

Oct 11
45.7
1,117
40,408
446
27,646
65.9
34.1

Oct 12
53.0
1,036
36,640
-3,768
28,284
56.5
43.5

Oct 13
57.5
1,025
37,052
412
27,655
44.4
55.6

5ME
Mar 14
58.7
427
35,663
-1,389
28,717
36.8
63.2

Mar 15
61.3
944
34,059
-1,604
27,716
34.5
65.5

Mar 16E
63.6
942
23,479
-10,580
40,132
27.6
72.4

Income Statement
Y/E March
Revenues
Change (%)
Cost Of Goods Sold
SG&A Expenses
EBITDA
% of Net Sales
Depreciation
Other Income
PBT
Tax
Rate (%)
PAT
Net Income
Change (%)

(INR Million)
Oct 10
50,366
18.1
33,749
4,607
12,010
23.8
1,638
1,089
11,461
1,192
10.4
10,269
10,269
13.0

Oct 11
50,980
1.2
36,741
4,305
9,934
19.5
1,550
1,751
10,135
1,827
18.0
8,308
8,308
-19.1

Oct 12
53,574
5.1
38,133
4,930
10,511
19.6
1,745
1,513
10,279
2,357
22.9
7,922
7,922
-4.6

Oct 13
57,963
8.2
41,958
5,670
10,335
17.8
1,446
1,062
9,951
2,514
25.3
7,437
7,437
-6.1

5ME
Mar 14
25,939
7.4
18,600
2,942
4,397
17.0
504
389
4,282
1,191
27.8
3,091
3,091
-0.3

Oct 13
2,101
47,243
49,344
5,600
54,944
10,892
8,770
2,122
266
22,499
18,995
1,015
26,060
12,582
5,943
7,535
16,013
10,047
54,944

5ME
Mar 14
2,101
49,049
51,150
5,555
56,705
10,912
8,734
2,178
62
21,865
18,154
968
26,522
12,967
4,700
8,855
13,044
13,478
56,705

Mar 15
57,949
-6.9
42,540
6,708
8,701
15.0
980
1,687
9,408
2,630
28.0
6,778
6,778
-8.6

Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Capital Employed
Gross Block
Less : Depreciation
Net Block
CWIP
Goodwill
Investments
Deferred tax assets
Curr. Assets
Debtors
Cash & Bank Balance
Loans & Advances
Current Liab. & Prov
Net Current Assets
Application of Funds
E: MOSL Estimates

30 July 2015

Mar 17E
64.0
1,025
26,019
2,540
39,402
23.4
76.6

Mar 16E
60,184
3.9
44,240
6,993
8,951
14.9
915
2,027
10,063
2,723
27.1
7,339
7,339
8.3

Mar 17E
65,617
9.0
47,589
7,528
10,500
16.0
959
1,921
11,463
3,152
27.5
8,311
8,311
13.2

(INR Million)
Oct 10
2,099
30,892
32,991
456
33,448
10,258
7,836
2,423
89
3,886
14,600
754
23,286
12,054
1,786
9,446
11,590
11,696
33,445

Oct 11
2,100
36,898
38,998
2,946
41,944
11,339
8,495
2,844
102
8,698
17,765
975
25,610
13,072
2,897
9,641
14,050
11,560
41,944

Oct 12
2,101
41,946
44,047
3,299
47,346
11,401
9,041
2,360
150
9,612
25,192
1,015
22,970
12,102
4,216
6,652
13,953
9,017
47,346

Mar 15
2,101
52,697
54,798
6,253
61,051
10,055
8,499
1,556
318
21,781
14,431
826
35,014
11,371
13,311
10,332
12,875
22,139
61,051

Mar 16E
2,101
55,527
57,628
4,661
62,289
10,605
9,266
1,339
400
22,210
14,387
717
42,132
12,501
19,432
10,199
18,896
23,236
62,289

Mar 17E
2,101
58,795
60,896
2,914
63,810
11,405
10,225
1,180
400
22,210
14,387
717
45,802
13,979
21,624
10,199
20,886
24,916
63,810

Mphasis

Financials and valuations

Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout %
Valuation (x)
P/E*
Cash P/E*
EV/EBITDA*
EV/Sales*
Price/Book Value
Dividend Yield (%)*
Profitability Ratios (%)
RoE*
RoCE*
Turnover Ratios
Debtors (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity Ratio(x)

Oct 10

Oct 11

Oct 12

Oct 13

5ME
Mar 14

Mar 15

Mar 16E

Mar 17E

48.6
56.7
157.2
3.5
7.2

39.3
46.9
185.7
6.5
16.5

37.5
46.0
209.6
17.0
45.3

35.3
42.3
234.9
17.0
48.1

14.7
17.1
243.5
7.0
47.6

32.3
36.9
260.8
16.0
49.6

34.9
39.3
274.3
18.8
53.7

39.5
44.1
289.8
20.0
50.6

8.5
7.3
5.9
1.4
2.6
0.8

10.5
8.8
6.9
1.3
2.2
1.6

11.7
9.7
6.5
1.2
1.8
4.1

11.7
10.0
6.6
1.1
1.7
4.1

12.8
11.2
7.5
1.1
1.6
3.9

11.8
10.5
6.4
1.0
1.5
4.6

10.4
9.3
5.1
0.8
1.4
4.9

36.4
36.4

23.1
22.2

19.1
19.6

15.9
17.4

14.8
16.7

12.8
13.1

13.1
13.0

14.0
15.1

77
18.0

90
19.4

86
20.6

78
25.9

74
29.0

77
31.0

72
41.6

74
52.1

0.0

0.1

0.1

0.1

0.1

0.1

0.1

0.0

Cash Flow Statement

Y/E March
Oct 10
Oct 11
CF from Operations
11,848
9,637
Chg. in Wkg. Capital
-2,757
1,247
Net Operating CF
9,091
10,884
Net Purchase of FA
-858
-1,985
Free Cash Flow
8,233
8,899
Net Purchase of Invest.
-7,929
-7,976
Net Cash from Invest.
-8,787
-9,961
Proceeds from equity
127
-704
Proceeds from LTB/STB
422
2,490
Dividend Payments
-858
-1,598
Net CF from Financing
-310
188
Free Cash Flow
8,233
8,899
Net Cash Flow
-6
1,111
Opening Cash Balance
1,792
1,786
Add: Net Cash
-6
1,111
Closing Cash Balance
1,786
2,897
E: MOSL Estimates; *Annualized values for 5m FY14E

30 July 2015

(INR Million)
Oct 12
9,627
3,862
13,489
-1,309
12,180
-8,341
-9,650
1,307
353
-4,180
-2,520
12,180
1,319
2,897
1,319
4,216

Oct 13
8,883
697
9,580
-1,324
8,256
-6,690
-8,014
2,040
2,301
-4,180
161
8,256
1,727
4,216
1,727
5,943

5ME
Mar 14
3,642
-4,674
-1,032
-356
-1,388
1,475
1,119
436
-45
-1,721
-1,330
-1,388
-1,243
5,943
-1,243
4,700

Mar 15
7,900
-50
7,850
-614
7,236
3,807
3,193
903
698
-4,033
-2,432
7,236
8,611
4,700
8,611
13,311

Mar 16E
8,364
5,024
13,387
-780
12,607
-385
-1,165
219
-1,593
-4,729
-6,102
12,607
6,120
13,310
6,120
19,430

Mar 17E
9,269
512
9,782
-800
8,982
0
-800
0
-1,747
-5,044
-6,790
8,982
2,191
19,430
2,191
21,622

Mphasis

Corporate profile: MphasiS

Company description

Exhibit 15: Sensex rebased

MphasiS, an HP-EDS company is amongst the top IT

service providers from India. It has a balanced mix
of Application and BPO businesses, with good
growth in ITO business, and support of its US-based
parent, HP-EDS. Mphasis employs over 35,900
people.

MphasiS

550

Sensex - Rebased

500
450
400
350
300
Jul-14

Exhibit 16: Shareholding pattern (%)

Oct-14

Jan-15

Apr-15

Jul-15

Exhibit 17: Top holders

Jun-15

Mar-15

Jun-14

Promoter

60.5

60.5

60.5

DII

5.8

5.0

4.7

FII

22.9

24.3

26.2

Others

10.9

10.2

8.6

Note: FII Includes depository receipts

Exhibit 18: Top management

Holder Name

% Holding

Aberdeen Global Indian Equity (Mauritius) Ltd

Aberdeen Global - Asian Smaller Companies Fund
Baring India Pvt Equity Fund III Listed Investments Ltd
Bajaj Allianz Life Insurance Company Ltd
LIC of India Market Plus - 1 Growth Fund

7.6
2.5
2.0
1.7
1.6

Exhibit 19: Directors

Name

Designation

Name

Name

Balu Ganesh Ayyar

CEO and ED

Friedrich Froeschl*

Lakshmikanth K Ananth

Elango R

Chief Human Resources Officer

James Mark Merritt

Shankar Maitra

V. Suryanarayanan

CFO

Balu Ganesh Ayyar

Stefan Antonio Lutz

Seshagiri Dhanyamraju

Chief Strategy Officer

Narayanan Kumar*

Mary Teresa Hassett

Gopinathan
Padmanabhan

President Global Delivery and

HP Channel Sales

Davinder Singh Brar*

*Independent

Exhibit 20: Auditors

Name
S R Batliboi & Associates LLP

30 July 2015

Exhibit 21: MOSL forecast v/s consensus

Type
Statutory

EPS
(INR)
FY16
FY17

MOSL
forecast

Consensus
forecast

Variation
(%)

34.9
39.5

34.7
38.2

0.6
3.4

10

Mphasis

NOTES

30 July 2015

11

Disclosures

This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies) and/sector(s), if any, covered in the report and may be distributed
by it and/or its affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not
Mphasis
constitute an offer, invitation or inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This
report is not for
public distribution and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal
recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider
whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as
up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur.
MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business relationships with a
some companies covered by our Research Department. Our research professionals may provide input into our investment banking and other business selection processes. Investors should assume that MOSt and/or
its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this
material may educate investors on investments in such business. The research professionals responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other
parties for the purpose of gathering, applying and interpreting information. Our research professionals are paid on the profitability of MOSt which may include earnings from investment banking and other business.
MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders,
and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary
trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing
among other things, may give rise to real or potential conflicts of interest. MOSt and its affiliated company(ies), their directors and employees and their relatives may; (a) from time to time, have a long or short position
in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation
or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with
respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations
made by the analyst(s) are completely independent of the views of the affiliates of MOSt even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report
Reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as
such, may not match with a report on a company's fundamental analysis. In addition MOST has different business segments / Divisions with independent research separated by Chinese walls catering to different set
of customers having various objectives, risk profiles, investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or
employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of
its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein is
based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSts interpretation of the data, information and/or opinions
provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or
summary of the securities, markets or developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to
update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way
responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time,
any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on
this report or for any necessary explanation of its contents.
Most and its associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant banking or brokerage services, may have received any
compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months.
Most and its associates have not received any compensation or other benefits from the subject company or third party in connection with the research report.
Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the date of publication of the research in the securities
mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the
report.
Motilal Oswal Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. SEBI Reg. No. INH000000412
There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be
directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation
of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues
Disclosure of Interest Statement
Analyst ownership of the stock
Served as an officer, director or employee

MPHASIS
No
No

A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes

Regional Disclosures (outside India)

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law,
regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.

For U.S.

Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In
addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the
United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or
intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the
"Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning
agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this
chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL,
and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore

Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors
Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to
accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Kadambari Balachandran
Email : kadambari.balachandran@motilaloswal.com
Contact : (+65) 68189233 / 65249115
Office Address : 21 (Suite 31),16 Collyer Quay,Singapore 04931

Motilal Oswal Securities Ltd

30 July 2015

Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com

12