Tuesday, June 09, 2009

Who Is The Promoter And How Do They Do:-
MphasiS Limited (then, MphasiS BFL Limited) was formed in June 2000 after the merger of the US-based IT consulting company MphasiS Corporation (founded in 1998) and the Indian IT services company BFL Software Limited (founded in 1993). In Jun ’06, MphasiS became a subsidiary of EDS. Subsequently, HP merged with EDS, making EDS its 100% subsidiary. HP then became the ultimate holding company of MphasiS and now holds 61%. MphasiS supports G1000 companies around the world through Infrastructure Technology Outsourcing (ITO), Applications Services Outsourcing and Business Process Outsourcing services. The company has a global footprint with staff over 30000 professionals. Hewlett-Packard is a technology company that operates in more than 170 countries around the world, with revenue of US$118.4bn for the fiscal year ending 31 Oct ’08.

Strong Business Outlook:-
MphasiS’s strong parentage of HP-EDS has helped it sustain high growth rates in the recent past and it should continue in foreseeable future too. Revenue from HP-EDS increased to 45% in 2QFY09, from 41% in the Sep ’08 quarter, indicating strong traction with the parent. HP’s 2QFY09 (Apr-end) revenue of US$8,488m from Services clearly indicates the extent of penetration potential for MphasiS within HP. HP awards its work in India to either Mphasis or HP India, depending on merit and Mphasis has an edge over HP India because of expertise in fields of BFSI and ITO (http://www.mphasis.com/offerings/ito.asp). Given HP's strong deal pipeline having won more than 30 deals (around $2.5bn) so far this year and more than $400mn to be executed in one year, there is a lot of growth potential for Mphasis.

Striving For Efficiency:-
Mphasis focused on cost containment measures and because of that its operating margin at 26.9% for the quarter ending Apr ’09 is the highest ever in the company’s reported history. MphasiS’ EBITDA margin is higher than TCS’ and next only to Infosys and Tech Mahindra. The Group's consolidated revenues in Apr-09 quarter rose 52.3% to Rs 1048 Cr and Net Profits grew 219% to Rs 224 Cr against the same period last year. The Group added 3822 new employees in recently ended quarter taking total headcount to 33810 as at 30Apr2009.

Possibility of de-listing:-
HP had bought out DigitalGlobalSoft (a subsidiary of Compaq) and it doesn't have any subsidiaries listed at other places in the world, so there is a possibility that Mphasis would also be get bought out in toto by HP some time in the future. This can be a major trigger for the stock.

Technical Evaluation:-
Mphasis stock is in a strong uptrend and has outperformed other technology stocks. It has stood firm even in market corrections and shows a major breakout above Rs 345-350 levels. The target for the stock can be Rs 390-400 in days to come, accumulate the stock for good returns. Short-term players can keep stops below Rs 315 to protect themselves from adverse movement.

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