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Mphasis Ltd

Cmp- 900 Rs

Mphasis is 28 years old IT services company based in Bangalore India specialising in providing a suite of application development and maintenance services, infrastructure outsourcing services and business & knowledge process outsourcing solutions to clients around the world. Mphasis was ranked #7 in India IT companies and overall #189 by Fortune India 500 in 2019. In April 2016, Hewlett Packard Enterprise sold the majority of its stake in Mphasis to Blackstone Group LP for around US$1 billion.

The company provides infrastructure technology and applications outsourcing services, as well as architecture guidance, application development and integration, and application management services. It serves financial services, telecom, logistics, and technology industries.

As on 31 March 2018, the Company has subsidiaries in Australia, Belgium, Canada, France, Germany, India, Ireland, Mauritius, Netherlands, People’s Republic of China, Philippines, Poland, Singapore, the United Kingdom and the United States of America.

Mphasis has more than 60 sales and delivery centers in 19 countries with delivery centers in India, China, Australia, Japan, North America and Europe. In India it has presence with operations in Bangalore, Chennai, Pune, Hyderabad, Mumbai, and Mangalore

MphasiS and DXC Technology, the world’s leading independent, end-to-end IT services company, announced a new Solution Partner relationship to transform and modernize enterprise applications for public, private and hybrid cloud. The collaboration builds on deep, complementary vertical expertise, strong portfolios in next-generation IT services, including cloud and digital innovations and accelerated automation capabilities to deliver strong business value to organizations across industries globally. The two companies will work together to help clients accelerate the modernization of their applications as they move to the cloud.

MphasiS announced block chain-enabled digital solutions, Wealthchain and Chainsure for the Banking, Financial Services and Insurance vertical. These solutions enhance security, efficiency and governance through which these firms and their partners jointly create and deliver value and experiences to their customers.

Blackstone Group -:

The Blackstone Group Inc. is an American multinational private equity, alternative asset management, and financial services firm based in New York City. As the largest alternative investment firm in the world, Blackstone specializes in private equity, credit, and hedge fund investment strategies.

Blackstone’s private equity business has been one of the largest investors in leveraged buyouts in the last decade, while its real estate business has actively acquired commercial real estate. Since its inception, Blackstone has invested in such notable companies as Hilton Worldwide, Merlin Entertainments Group, Performance Food Group, EQ Office, Republic Services, AlliedBarton, United Biscuits, Freescale Semiconductor, Vivint, and Travelport

As of 2019, the company’s total assets under management were approximately US$545 billion dollars. In April 2019, Blackstone disclosed it was converting to a corporation from a publicly traded partnership.

Blackstone Philosophy-:

Blackstone’s approach to any investment is a business building approach and that is why we see them committing very large amounts of dollars and putting global Blackstone resources behind their investments.

One of the foremost criteria of Blackstone is that they don’t put any capital or cash in the company unless the management can deliver at least a 15% return on that capital. That is one of the reason Blackstone Group takes pride on being very efficient capital allocators. 

Their Belief if simple, they are not believers in building a big war chest for acquisitions and things of that nature, but being very prudent in capital allocation and if that capital allocation is not available or acquisition opportunities or deployment opportunities are not available to earn that 15% plus return, then that cash better off with the shareholders.

History-:

Established in the year 1992, Mphasis was  It was formed after the merger of the US-based IT consulting company MphasiS Corporation and the Indian IT services company BFL Software Limited.

Mphasis was formed in June 2000 after the merger of the US-based IT consulting company Mphasis Corporation (founded in 1998 in Santa Monica by Jerry Rao and Jeroen Tas.) and the Indian IT services company BFL Software Limited (founded in 1992).

MphasiS had acquired 100% interest in MphasiS Corporation – USA in June of the year 2000

In the year 2002, the company had signed an agreement for the acquisition of Navion (Shanghai) software Development Company Ltd. MsourcE Corporation; a subsidiary of MphasiS BFL had entered into a partnership to provide the complete gamut of customer care services to the US Women’s Chamber of Commerce (USWCC). 

After a year, in 2003, the same subsidiary and Accenture had agreed to work together in India to offer their client world-class call centre BPO services. MsourcE Corporation has become the first contact centre in the country to be awarded the BS-7799-2: 2002 certification. 

During the year 2004, MphasiS achieved the SEI-CMMI Level 5 accreditation

In the year 2006, The International Association of Outsourcing Professionals (IAOP) had named MphasiS in the Global Outsourcing 100 List

In June 2006 Electronic Data Systems (EDS) purchased a controlling stake in the company (42%) for $80 million and operated the company as an independent EDS unit.

NASSCOM ranked the company in Top 20 IT Software and Service Exporter, Top 15 BPO Rankings and also in Top 10 IT-BPO Employers for the year 2007-08.

Hewlett-Packard and Mphasis

On 13 May 2008, Hewlett-Packard confirmed that it had reached a deal with Electronic Data Systems to acquire the company for $13.9 billion. The deal was completed on 26 August 2008.

In September 2009 Mphasis changed its brand identity by dropping EDS association to become “Mphasis, an HP Company” after HP retired EDS Brand to become “HP Enterprise Services”. Mphasis operated as an independent HP subsidiary with its own board and continued to be listed on Indian markets as “Mphasis Limited”. HP owned close to 62% in Mphasis and Mphasis got around 50% of its revenues from HP.

Mphasis marked $1 billion in revenues and registered a consolidated revenue of Rs50.37 billion ($1,099.3 million) for the year ended 31 October 2010 becoming the sixth Indian IT company to do that.

In February 2014, Mphasis changed its logo and the brand name as Mphasis Unleash the Next, seeking to boost business other than from parent Hewlett-Packard, its largest client.

In 2016, after Hewlett-Packard announced plans to sell its controlling stakes in Mphasis, three companies Tech Mahindra, Apollo Global Management and Blackstone Group entered the race to acquire Mphasis. Tech Mahindra emerged as the frontrunner. before it decided to pull out in order to avoid a bidding war with other companies. 

In April 2016, it was announced that Blackstone had acquired 84 percent of Hewlett-Packard’s stake in Mphasis in a deal worth between $825 million and $1.1 billion.

Financials-:

Net Sales at Rs 2,276.72 crore in December 2019 up 15.51% from Rs. 1,970.96 crore in December 2018.

Quarterly Net Profit at Rs. 293.60 crore in December 2019 up 5.62% from Rs. 277.97 crore in December 2018.

EBITDA stands at Rs. 463.09 crore in December 2019 up 21.49% from Rs. 381.19 crore in December 2018.

Revenue came at USD 318mn, +4.3/12.4% QoQ/YoY led by Direct Core (57.7% of rev) growth at +4.5/14.7% QoQ/YoY CC

EBIT margin stood at 16.2%, +15bps QoQ supported by better-mix (Emerging industries) and higher fixed price.

KEY FEATURES

  • Company has a average ROCE over 5 year period of above 20% .
  • Company has ROE of 20%.
  • OPM of the company is consistent in range of above 16% over last 3 year period. 
  • Company has solid compounded sales growth of 8% and 24% over 3 and 5 year period respectively.
  • Company has solid profit growth of 18% and 28% over 3 and 5 year period respectively.
  • Debt to equity ratio stands at apron 0.22 which very low as compared to industry peer companies.
  • Company has cash and equivalents of Rs641 crore.
  • Company has Reserves of Rs 5000 crore.
  • Company is consistently Dividend paying with 50% dividend payout ratio.

ShareHolding Pattern-:

Foreign Portfolio Investors-:

  • ABERDEEN GLOBAL INDIAN EQUITY LIMITED
  • ISHANA CAPITAL MASTER FUND
  • THE NOMURA TRUST AND BANKING CO., LTD
  • FIRST STATE ASIAN EQUITY PLUS FUND
  • STICHTING DEPOSITARY APG EMERGING MARKETS EQUITY POOL
  • NOMURA INDIA INVESTMENT FUND MOTHER FUND

ACQUISATIONS-:

  • Navion Software, China (2002)
  • Kshema Technologies, Bangalore, India (2004)
  • Onida Infotech Services (Mirc Electronics SAP Division), Mumbai, India (2004)
  • Princeton Consulting, UK (2005)
  • Eldorado Computing, US (2005)
  • AIG Systems Solutions, India (2009)
  • Fortify Infrastructure Services, US (2010)
  • Wyde Corporation, US (2011)
  • Digital Risk LLC, US (2012)
  • Stelligent, US (2018)

Wyde Coporation-:

Headquartered in Minneapolis, USA, with a modern Research & Development (R&D) centre in Paris, France, Wyde has developed and deployed Wynsure, a proven software platform, at many of the leading insurance carriers in North America and Europe. Wynsure is a multi-language, multi-currency, easily customizable software that offers policy administration, claims and billing solutions across Life & Annuities (L&A), disability, health, and Property & Casualty (P&C). Wynsure platform can be deployed at an insurance carrier either one business line at a time, or as a complete end-to-end solution. Wyde has over 200 employees who possess significant domain expertise.

AIGSS INDIA-:

The acquisition of AIGSS will help MphasiS augment its capabilities for the insurance industry and offer domain solutions. Based in Chennai and Kolkata, AIGSS has more than 800 employees and provides IT services to AIG and its member companies. AIGSS service offerings include application development and maintenance, application implementation, testing, product development and support.

Fortify Infrastructure Services

In 2010, MphasiS announced that it has reached a definitive agreement to acquire Fortify Infrastructure Services, a global provider of offshore based Remote IT Operations and Management (ROM) Services. Fortify Infrastructure Services is a privately held company with presence in India and the US. The acquisition will give MphasiS access to marquee customers, an experienced management team, a talent pool of highly specialized professionals and a proven platform to provide ROM services. This will be part of a new business unit which focuses on ROM services. MphasiS will be acquiring a 100% equity stake in Fortify Infrastructure Services in an all-cash transaction.

Digital Risk LLC

Digital Risk LLC is a Orlando, Florida, USA based company. Digital Risk is one of the largest independent providers of Risk, Compliance and Transaction Management solutions to the United States mortgage market. The acquisition is an all cash deal valued at USD$ 175 million with an additional earn-out component. Later, MphasiS completed the acquisition of Digital Risk LLC on 11 February 2013.

INNOVATIONS-:

Sparkle 

The Sparkle Innovation Ecosystem ‘Applies Next’ beyond what is developed in house at Mphasis and by their partners. This is a unique powerhouse that leverages disruptive start-ups, meticulous research compiled by academicians, innovations and frameworks posted by practitioners from various industries, economies and geographies globally.

Three key pillars of the Sparkles Innovative Ecosystem are: 

1. Sparkle Labs is the conduit between enterprises, both legacy as well as digital native and disruptive start-ups 

2. The Sparkle Accelerator program brings together top educational institutions, consulates, and industry bodies to discover cutting-edge technologies, software, and frameworks that are ready to be ‘next’ applied, monetized

3. Sparkle Co-creation Hub is our signature innovation factory for bespoke custom-built hyper-personalized solutions, prototypes, and pilot disruptive solutions created for Mphasis’ strategic clients

Next Labs-:

NEXT Labs vision is to become the preferred innovation partner for our clients. Set up in March 2015, our lab focuses on research and innovation on emergent and future paradigms related to Mphasis’ focus areas through disruptive world class innovations, thought leadership, and industry relevant solutions. NEXT Labs houses a core diverse set of passionate people who work on cutting-edge innovations and industry relevant solutions. Our innovators collaborate with internal stakeholders, leading academia, start-ups, and technology partners across the globe towards crafting solutions that are guided by our clients needs. NEXT Labs is very closely tied with the Mphasis delivery arm to ensure quick and successful application of the research outputs/innovations to live client projects

BUYBACK-:

Mphasis had twice announced buyback over the past 5 years.

In 2017 The Board of Directors of MphasiS had approved a proposal for Buy-back of equity shares from all the existing shareholders of the Company on a proportionate basis through the Tender Offer method at a maximum price of Rs 635 per equity share, aggregating to an amount not exceeding Rs 1103 crore.

In 2018 The Board of Directors of MphasiS had approved a proposal for Buy-back of equity shares of the company from all the existing shareholders on a proportionate basis through the Tender Offer method at a maximum price of Rs 1,350 per equity share, aggregating to an amount not exceeding Rs 988.27 crore. The Board also recorded the intentions of the Promoter to participate in the proposed Buy-back.

Schedule of Activities for the Buy-back of up to 7,320,555 (Seven Million Three Hundred Twenty Thousand Five Hundred and Fifty Five) Equity shares of the Company of Face Value of Rs.10 (Rupees Ten Only) each at a price of Rs.1,350 

Conclusion-: IT companies may not be able to fetch mutlibagger returns but sometimes this companies are worth having in Portfolio in times of Volatile markets there by providing overall stability to the portfolio.

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