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Mphasis’ growth convergence with direct business to aid valuation: Motilal Oswal



Mphasis Ltd’s growth from direct business is expected to aid its valuation, according to a report from brokerage firm Motilal Oswal Financial Services Ltd.

The second quarter performance of Mphasis was led by a 9.9% sequential growth (in constant currency) in the direct business, while the DXC vertical (6% of revenue) again declined 24.5%. EBIT margin, adjusted for one-time M&A charge remained stable. It reported a net new deal total contract value of $241 million in the second quarter.

“With the management reiterating its industry-leading growth guidance in the direct business, the standout growth in direct should continue (34% year-on-year in FY22). We see a strong new-gen deal pipeline as a testimony to the strength of the demand environment. This should lead to improved medium-term growth visibility in the business,” Motilal Oswal said.

Going forward, the brokerage firm expects the overall growth to converge with direct channel growth, which should drive the momentum in revenue growth.

“Impressive deal win trajectory and continued expansion in the pipeline would drive growth in the medium term. While the overhang from the DXC business (about 6% of revenue) persists, strong traction in Direct International should continue to drive overall performance. The management’s ability to defend margin is a key positive,” the brokerage firm said.

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