We are bullish in Mphasis: Angel Broking

There is talk of Mphasis being not too expensive an IT stock. The results have been fairly decent. What do you make of it?

The results have been decent but more importantly they have been above estimates. After last year’s stupendous results that this company posted wherein everything from revenue to bottom-line almost doubled after HP acquired EDS, there were clearly two schools of thought.

The one bearish said that it was a one-time transition from HP that has happened and the run rate going forward is unlikely to be continued with margins coming under pressure. The other one - into which I belong - have maintained that the margins may not be sustained at these levels but there may not be a drastic fall, hardly 150 basis points.

But even if you assume that the revenue growth is going to be 20-22%, 3-4% higher than the industry because of the parent being a strong company such as HP, which is possible. At 14-15 times, this company is not very expensive considering the fact that this is getting into the top 5 club.

Going forward, this may not enjoy the same multiples as a typical mid-cap IT company because that is an HP company and the way they brand themselves is also like that. So if you have to compare it with the likes of I-flex and given this it becomes an MNC company, then the prospects are unlimited. So we have maintained a bullish stance on it and we have been vindicated at least for the first part.