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Wednesday, September 23, 2009

Mphasis Ltd:Future growth outlook and prospects,best bet in the tech sector

Scripscan:Mphasis Ltd
Bse code:526299

Story:With the acquisition of AIG Systems and Solutions (AIGSS), Bangalore-based IT firm Mphasis has joined the likes of TCS and Wipro. Each of these Indian IT players has acquired the captive IT/BPO units of global financial institutions in the last three quarters.This confirms a trend among Indian IT exporters of ensuring their future revenues via inorganic route at a time when organic growth faces challenges from declining global IT spends.The AIGSS deal is of great importance to Mphasis in a way that it would help the latter in arresting a drop in its revenue from the banking and financial services and insurance (BFSI) vertical. Its share of BFSI revenue dropped 400 basis points (bps) to 39% in the April ''09 quarter from the previous quarter. AIGSS provides application development and maintenance services to companies in the AIG group worldwide. Its acquisition would increase Mphasis'' revenue from BFSI application services two-fold.It is difficult to ascertain the financial impact of this deal since the deal size and other details about the size and profitability of AIGSS have not been disclosed. However, on the operational front, the acquisition is expected to add new competencies for Mphasis in the areas of retirement products, personal auto and global insurance products.The takeover would increase Mphasis'' current application services team of over 11,500 by another 800 associates. The takeover would also help Mphasis strengthen the three-year old existing customer relationship with AIG. All this bodes well for the Indian IT exporter, which is a subsidiary of HP India, when looked against the backdrop of slowing revenue from new client accounts due to the economic downturn.At present levels, The valuation is steep when compared to the P/Es of other bigger IT companies. However, this does not take into account the accretion in the bottomline once the financials of AIGSS are consolidated with Mphasis.A long term buy.

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