>Mphasis Limited (EMKAY)

Our recent interactions with Mphasis management continue to reinforce our strong belief in the company being the best demand story in the sector with a softening currency environment adding more fuel to our argument (Mphasis has higher sensitivity to a depreciating currency as offshore proportion at ~72% of revenues is the highest in the sector). Our +ive view on the company continues to get vindicated with quarterly results beating expectations by a wide gap for more than 3 quarters now. (please refer to the section: Mphasis: Best performing IT services stock across all time frames)

Though more clarity on HP’s offshoring plans would clearly help we believe that investor concerns around any unfavorable treatment to Mphasis (given that HP already has a 100% subsidiary in India) remains a wild card. Investors cite Digisoft as a precedent, however we note that even in case of Digisoft , delisting happened at significant premium to June’03 price levels. (please refer relevant section below). We are comfortable upping our FY09E and FY10E earnings further by ~15% post our interactions with the company and now expect Mphasis to report earnings of Rs 34.6 and Rs 32.2 for FY09/FY10 (as compared with Rs 29.9 and Rs 28 earlier). Maintain BUY with a price target of Rs 240. (For our comments on Q1FY09 results, please refer to our result update ‘Mphasis: Rock on performance speaks for itself’ dated
March 2’09).

To see full report: MPHASIS LIMITED