Mphasis rallies 9% on in-line June quarter earnings, new deal win

Signing of new deal worth $216 million deal in July 2020, in addition to the Q1 TCV declared wins worth $259 million also boosted sentiment

Shares of Mphasis rallied 9 per cent to Rs 1,072 on the BSE on Friday after the company’s April-June quarter (Q1FY21) earnings came in-line with Street estimate. Besides, signing of new deal worth $216 million deal in July 2020, in addition to the Q1 TCV declared wins worth $259 million, boosted sentiment.

In constant currency terms, the company’s revenues fell 4.6 per cent quarter on quarter (QoQ) to $305 million. The earnings before interest tax (EBIT) margin, meanwhile, contracted 60 basis points (bps) QoQ was largely due to a drop in the gross margin (200bp QoQ). Profit after tax fell 22.1 per cent QoQ to Rs 275 crore.

“The company has won new TCV (total contract value) of $259 million (includes one large deal of over $100 million) in Q1FY21, which will drive revenues and margins in coming quarters. Also, the company has limited exposure to impacted verticals, which is a key positive,” ICICI Securities said in a note.

However, the recent run-up in the stock price coupled with poor DXC revenues in Q1FY21 makes us cautious on the stock, it said.

“The company announced new TCV wins of $259 million in 1QFY21 in Direct International. This is the highest ever TCV win for a quarter for Mphasis and comprises one large deal win of over $100 million TCV. Around 79 per cent of the deal wins during the quarter are into new gen services. We await further clarity on the outlook on DXC and margins in the earnings call,” Motilal Oswal Financial Services said in result update with ‘neutral’ rating on the stock.

At 10:29 am, Mphasis was trading 8.5 per cent higher at Rs 1,066 on the BSE compared to 0.46 per cent decline in the S&P BSE Sensex. The stock was quoting close to its 52-week high of Rs 1,098.90 touched on July 16, 2020. In the past one month, it has rallied 24 per cent compared to 8.8 per cent rise in the benchmark index.