Buy This Largecap IT Stock For 36% Potential Return, Top Brokerage Recommends

Reputed brokerage firm HDFC Securities recommends investors to buy the stock of Mphasis, for a potential gain of 36% returns. This company has given around 240% returns to its shareholders, making it a multibagger stock.

Stock To Buy: Target Price & Financials

The Current Market Price (CMP) of Mphasis is Rs. 2,161. HDFC Securities has estimated a Target Price for the stock at Rs. 2,940. It is a large-cap stock with a market capitalization of around Rs. 39,492 crore. This stock has the potential to give 36% return, in the upcoming 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 2,161
Target Price	Rs. 2,940
Potential 1 year return	36.04%
52 week high share price	Rs. 3,659.75
52 week low share price	Rs. 2,035

Financials

The company's revenue in FY22 was recorded at Rs. 1,593 b, which is expected to be at Rs. 1,820 b in FY23. Their EBIT in FY22 stood at Rs. 18.27 b, which is expected to be at Rs. 21.66 b in FY23. The company's adj. PAT in FY22 was recorded at Rs. 14.46 b, which is expected to be at Rs. 16.83 b in FY23.

Stock Advantages: HDFC Securities

"Mphasis' performance is supported by an industry-best large client mining engine, consistency in large deal wins, and stable operating metrics. While near term under-performance is premised on Digital Risk portfolio, we have factored in +14.3/13.1% growth in revenue, based on growth in the direct business at +17.2/14.5% and DXC channel at -24.1/-13.1% for FY23/24E respectively; further, we have factored in EBITM at 15.2/15.5% for FY23/24E, resulting in an EPS CAGR of 16% over FY22-24E. Our target price of Rs. 2,940 is based on 28x FY24E EPS," maintaining a buy rating the brokerage firm mentioned.

Sectoral growth

TCV conversion, pipeline and customers spending continues to remain healthy, post Q1FY23, and transformation spends of clients are in place. TCV & pipeline build-up continues to be proactive and mostly in new gen services. Tech spends of major BFSI companies have remained constant or improved slightly and there is no change in spending due to macroeconomic headwinds. Large banks are gaining market shares and have been in transformation for a longer period of time and Mphasis is trying to gain market share from them. Regional banks are keen and interested in partner suite with players that have undergone transformation; hence, there is continued interest in them.

Digital Risk business

Digital Risk business would be lower than that of 3-4 quarters back and a large part of that has already impacted the financials in Q4FY22 and Q1FY23 while further softness is expected in Q2FY23E. Clients are open for price increase discussion for the niche skills and MPHL has already received some price hike in the recent past (newer project comes at higher pricing). The management expects growth environment to be robust and maintains a margin band of 15.25 to 17% for FY23E. However, margin will be towards its lower band due to costs coming back.

Company Portfolio: Mphasis

Mphasis applies next-generation technology to help enterprises transform businesses globally that uses Front2Back^TM Transformation approach. Front2Back^TM uses the exponential power of cloud and cognitive to provide hyper-personalized digital experience to clients and their end customers. Mphasis' Service Transformation approach helps 'shrink the core' through the application of digital technologies across legacy environments within an enterprise, enabling businesses to stay ahead in a changing world.

Disclaimer

The above stock was picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.