Prabhudas Lilladher: 'Buy' Mphasis BFL

Prabhudas Lilladher has upgraded its recommendation on Mphasis BFL from "Outperformer" to "Buy" after the announcement of the merger of EDS India with Mphasis BFL.

According to a report released on July 26, the brokerage said: "Strategically, this merger is on a positive note. In a sense it would do away with dual managing responsibility for EDS of a 100% subsidiary and a 51% subsidiary. Operations as a single organization would enable catering to a critical mass out of India. However, we would not rule out a marginal set-back for Mphasis, in that it might lose some customers who are now globally aligned with IBM (EDS's key competitor) and who would not wish to thus associate with Mphasis, which would now be owned by a competitor.

"In the long term, undoubtedly, the scenario looks empowered for Mphasis. We believe that, with EDS now obtaining a 62% stake in Mphasis, the latter stock would be re-rated, based on the company's association with a global leader, leading to an enhanced growth trajectory.

"The stock trades at 13.5x and 11.2x FY07 and 08 estimates, respectively, and 11.5x and 8.7x FY07 and 08 estimated EV/EBIT (pre-merger). We upgrade our recommendation to BUY from Outperformer."

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