Stock Review: MPHASIS

MphasiS' stock has recorded a marginal recovery since the company announced its April 2011 quarter results. Though the company's profitability and revenue growth were not impressive, what relieved investors was a stronger growth in the billing rates and employee utilisation.

The company's stock has appreciated by over 4% in the past eight trading sessions after its quarterly results were declared in the last week of May. This is in line with the gains. Apart from better demand prospects, analysts' belief that there may not be a major downward price negotiation in contracts from the parent HP could also keep the stock buzzing. Over the past six months, the company's stock had been a laggard in an otherwise buoyant IT landscape. A lack of growth momentum in a majority of its verticals including banking, finance, and insurance (BFSI), media and entertainment, and emerging industries, and billing pressure from the HP channel business had adversely impacted the core performance of the company. In the past four-six quarters, the growth in its revenue and profits lagged behind that of its bigger peers despite an improved demand scenario for IT outsourcing. The stock had seen its worst daily fall of over 28% soon after its January quarter results when the company had reported a sharp 8.5% drop in its dollar denominated revenue.

Against this backdrop, its April quarter performance looks more or less stable with a 3.5% sequential revenue growth. This was mainly driven by a rebound in its BFSI segment, which grew by over 7%. The company seems to be gradually latching up on to the general recovery in the demand scenario given its higher client addition in the April quarter. It added 30 clients during the quarter over and above 18 new clients in the previous quarter. Both the direct and HP channels showed a good client traction.