US revival, lower forex losses and stability at Mphasis may turn things around ET INTELLIGENCE GROUP: The stock of IT services provider Mphasis lost as much as 17% in 2014 compared with a gain of 17% in the sector index, ET Infotech. A drop in the business from the parent, HP, slower growth in the revenue from the US mortgage industry, and mounting foreign exchange loss impacted the stocks valuation. However, a team of analysts at Espirito Santo Securities believes that the scenario is expected to change in 2015. The company is expected to benefit from a gradual recovery in the US market, which together with declining exchange losses and an expected stability in the HP business should help the stocks valuation, according to the brokerage. The year 2014 will end up as rather bad for Mphasis on bourses. According to Bloomberg data as on December 22, 2014, nearly half of the analysts - 46.7%, to be precise - that issued a rating on the stock advised clients to sell it and just over 16% of them gave out a buy rating. A year ago, only a third of the analysts or 34% had a bearish call on the stock while 25% of them had a positive call. Analysts downgraded the stock over the past four quarters following a declining trend in the business that Mphasis derives from its association with HP. Digital Risk, a US subsidiary of Mphasis, also reported slower revenue growth due to weakness in the US mortgage segment. These factors together impacted the companys performance. In the trailing 12 months to September 2014 after adjusting for the change of reporting period in the March 2014 quarter, net sales dropped 1% whereas net profit skidded 5% from a year ago. During the September quarter, its sales fell 1.7% sequentially to Rs 1,464.9 crore and net profit dropped 8.3% to Rs 160.2 crore. The management of Mphasis has hinted at a slower pace of mortgage business growth in the remainder of the current fiscal. The revenue from HP, too, may stay weak. The stocks current valuation and its performance so far on bourses reflect the short-term slack in operations. The scenario, however, is likely to change from the first quarter of FY16, according to Espirito Santo Securities. In a recent report, it upgraded the stock from neutral rating to buy. ... we expect the prospects of US-based Digital Risk to improve in the next two quarters led by improvement in mortgage volumes in the US. This, coupled with lower forex losses on the revenue line over the next couple of quarters, should drive EBITDA margin improvement in FY16, it stated. The brokerage also pointed out that a renewed focus of HP on IT services business may help in stabilising its contribution to the revenue of Mphasis. The brokerage has issued a target stock price of Rs 450 while the Bloomberg consensus target price is Rs 399. The stock ended at Rs 360 on Monday.
Posted on: Wed, 24 Dec 2014 01:36:34 +0000
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