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Mphasis BFL Ltd

Mphasis BFL Results Update: 1QFY09 (November - October fiscal) results were better, on higher revenues and margins. Volume growth of about 6% QoQ in IT services is encouraging in this macro scenario. Third consecutive quarter of 6 - 7% volume growth; HP support is a differentiator.

According to the management, the overall volume growth was 4% with IT services reporting a 6 - 7% rise, and ITO reporting a 10 - 12%. BPO business continued with a volume de-growth. This is the third consecutive quarter of 6 - 7% volume growth for IT services which is impressive.

Mphasis saw a faster growth in European geography, which contributed about 22% to overall revenues.On-site revenues continued to help overall growth rates. On-site revenues contributed to 28% of overall revenues as against 26% in the preceding quarter.The initiation of several projects in recent quarters has led to more on-site jobs before they are transitioned off-shore.

BPO business - muted growth continues.
BPO revenues de-grew by about 2% on a sequential basis.The company has been focusing on scaling down its voice business while focusing on the non-voice revenues.

EBIT margins higher
EBIT margins improved over the previous quarter. Optimisation of costs, higher onsite billing rates (mainly due to Europe) and depreciation of the Indian Rupee against the US Dollar resulted in increase in the gross margins QoQ.
PAT is expected to reach Rs.7.56bn in FY09. This would translate into an
EPS of Rs.36 for FY09.BUY with a price target of Rs.242.

Concerns
A prolonged recession in major user economies may impact our projections.
A sharp acceleration in rupee from the current levels may impact our earnings estimates for the company.
While strong parentage is a positive, uncertainty over future allocation of business remains a concern for the market.