MphasiS Will Come Out Strong In Coming Years
MphasiS Ltd. (NSE: MPHASIS) has not been able to provide sufficient capital return for the investors in the last two years. In the graph below, while TCS seems to be romping around with strong upward pricing action, MphasiS seems to be going down.
MphasiS Limited delivers applications services, infrastructure services, and business process outsourcing (BPO) services globally. It specializes in providing a suite of application development and maintenance services, infrastructure outsourcing (ITO) services and BPO to clients worldwide. The Company services clients in banking and capital markets, insurance, manufacturing, communications, media and entertainment, healthcare and life sciences, transportation & logistics, retail and consumer packaged goods, energy and utilities, and to Governments worldwide.
Book Value (Rs)
Price seems to have been aligned with the book value of the company. The PE ratio of 10.32 is not very high in comparison the other companies in the same industry.
Profitability ratios have increased over time. Yet apparently, the company has come to a matured stage. Superior earnings growth might not be possible in the coming few years. Thus, the price will probably increase but only in single or double digits.
The high debt of Rs. 269 crores, as recorded in 2012, can have a toll on the investor’s return. With cash being hoarded and not invested in further growth of the company, the decreasing current ratio (thus, interest coverage ratio) gets me thinking.
With time, asset turnover ratio tones down since marginal revenue follow a reverse “U” graph. The only way to maximize revenue with increased assets is to create synergy of operations (which many people refer to as “economic moat”). It is a good thing though that expense has decreased over time. Well, marketing costs are always higher during the inception of a company.
|As on||Oct, 2012||Oct, 2011||Oct, 2010||Oct, 2009||Oct, 2008|
|Asset Turnover Ratio||0.91||1.04||1.49||2.05||2.90|
|Expenses to Total Sales||87.77||88.29||96.88||96.86||92.3|
Dividend payment lures many investors. And ultimately, that is what you expect from any value company. MphasiS has turned into a value stock with increased dividend payout and stable revenue growth. The company has shown resiliency through the Great Recession and has come out strong and steady.
In short, MphasiS is a buy at the moment.