Mphasis Limited

Q2 FY22 Review

Mphasis Limited reported a total income of Rs 2,869 crore for the quarter ended Sept 30, 2021, when compared to Rs 2,435 crore for the quarter ended Sept 30, 2020. EBIT and Profit After Tax was Rs 476 crore and Rs 341 crore for the quarter ended Sept 30, 2021, as compared to Rs 418 crore and Rs 299 crore during the corresponding quarter of the previous year.

Investment Summary

Overview

• Leading provider of Information Technology/IT enabled services

• Reducing dependence on DXC business

• Strong presence in America

• Net TCV wins of over $200 million for seven consecutive quarters

• Front2Back approach; “Tribes and squad” driven competency model

• Acquisition of Blink Interactive Inc

Quarterly Summary

Business

Mphasis Limited is a global technology company with a specialization in providing a suite of application development and maintenance services, infrastructure outsourcing services and business & knowledge process outsourcing solutions to its clients across the world. It has deep domain expertise in the Banking, Financial Services and Insurance sectors (BFSI) and serves 35 of the top 50 US BFSI firms. The company has a global presence through its delivery centers in several countries like Australia, China, Singapore, US, UK, France, Canada and other countries. Mphasis was incorporated in the year 1992, formed after the merger of Mphasis Corporation, a US-based IT consulting company and BFL Software Limited, an India-based IT services company. The company has BLINK, Mphasis Datalytyx, Mphasis Digital Risk, Mphasis Javelina, Mphasis Stelligent and Mphasis Wyde as its subsidiaries.

The company’s services are broadly categorized into two businesses – Direct and DXC. Under its Direct business, the company predominantly caters to its customers in the sectors like banking, diversified financial services and insurance. From this business, the company realizes around 83% of the total revenue. DXC business was formed through a merger of HP Enterprise (HPE) and Computer Sciences Corporation (CSC), after the private equity firm Blackstone bought the firm in April 2016 for over USD 1 billion from Hewlett-Packard. As a part of the deal, HP offered a minimum revenue commitment of USD 990 million over a period of five years. The commitment period ended in 2021, and the company reduced its dependence on DXC business. The revenue from DXC is expected to stabilize at 10-12%, and currently, the revenue from DXC is at 15% of the total revenue in FY21.

Mphasis identifies the business segments as Banking and Capital Market, Logistics and Transportation, TMT (Technology, Media & Entertainment, and Telecommunication), Insurance, and Others. The segmental revenue from Banking and Capital Market was around Rs 49,860.7 crore (51.28% of the total revenue) in FY21, an increase of ~25% when compared to the revenue from this segment in FY20. Revenue from Logistics and Transportation was around Rs 12,681.5 (13.04% of the total revenue) in FY21, an increase of ~4.5% when compared to the revenue from this segment in FY20. Revenue from the segment TMT was around Rs 12,924.9 (13.3% of the total revenue) in FY21, a decrease of ~7.5% when compared to the revenue from this segment in FY20. Revenue from the segment Insurance was around Rs 9,508.9 (9.8% of the total revenue) in FY21, a decrease of ~5.4% when compared to the revenue from this segment in FY20. Revenue from the segment others was around Rs 11,944.35 (12.3% of the total revenue) in FY21, a decrease of ~0.45% when compared to the revenue from this segment in FY20.

In April 2021, the PE firm Blackstone dropped its plan of selling its stake in Mphasis and transferred its entire shareholding to its two new funds. Blackstone believes that the market value of Mphasis will grow to over $10 billion from then valuation of $ 4 billion.

Mphasis acquired a US-based design consultancy services firm, Blink Interactive Inc for $ 94 million in September 2021. Blink provides design consultancy services around user experience (UX) and customer experience (CX) for marquee brands. This acquisition is expected to boost the company’s experience competencies with end-to-end capabilities in user experience research, strategy, design and implementation. This deal is revenue-accretive and is expected to be in line with the company’s Front2Back transformation and growth strategy.

Revenue Trend

Topline and Bottomline trend (Crores)

EBITDA Margin Trend (%)

ROE, ROCE, and Asset Turnover trend (%)

Shareholding Pattern (%)

Top 10 Shareholders

Ratio Analysis