Citi retains 'sell' on this midcap IT stock; sees potential downside of over 24%

Mphasis share price, stock market today: Global brokerage Citi is bearish on Mphasis and has retained its 'sell' call on the midcap IT stock for a target of Rs 2,080. This signifies a potential drop of over 24 per cent from the last close.

In the early morning deal on Thursday (December 28), the company’s shares traded 0.59 per cent lower at Rs 2,721.85, while at the day’s low, they hit Rs 2,706.6 apiece on the BSE.

In its takeaways from the company's CFO meet, Citi highlighted that demand at the company hasn't changed in comparison to the start of the quarter. Further, it maintains that the total contract value (TCV) to revenue conversion cycle remains stretched. Additionally, for the third quarter, organic growth is seen to remain muted amid increased furloughs.

Meanwhile, the brokerage held that the revenue contribution from the acquisition would be lower than the annual run rate. The annual run rate, or revenue run rate, also referred to as the sales run rate, is a measure used to project upcoming revenue, usually for a year, based on previous earnings. Say, if the business logged Rs 1 crore in sales in the previous quarter, its annual run rate would be Rs 4 crore.

It must be noted here that in October this year, Mphasis acquired Silverline, a digital transformation consultancy and Salesforce partner.

Citi further pointed out that the margin impact at the software and consulting firm will be slightly higher due to the acquisition. Besides, Citi added that the company is confident of maintaining margins (ex-M&A) in the 15.25 per cent to 16.25 per cent range for FY24.

Shares of Mphasis in the last one year have delivered a 40 per cent return, while its three-year return is more than 74 per cent.

The stock is trading at a trailing twelve-month price to earnings of 31.9, which is above the industry average.

For the stock, the consensus recommendation from 29 analysts is ‘hold’, with a 'strong buy’ by 7 of them, according to Trendlyne data.

Mphasis Limited is an information technology (IT) services and solutions provider. The company is engaged in offering applications, business process outsourcing (BPO), and infrastructure services.