Why Mphasis Share Price is Falling

2022 (and 2023 so far) proved to be the worst years for the Indian IT sector. In 2022, IT companies were troubled by high attrition rates.

2023 brought a fresh set of problems for them. The last earnings call transcript of all top IT companies mention "uncertainty" as one of the top keywords that their management highlighted.

Mphasis was no exception to the sectoral pressure.

Owing to deep trouble in the IT sector, Mphasis share price fell by 23.9% in the past one year. In the past six months, Mphasis share price is down 8.3%.

Read on to know what went wrong ...

#1 Weak quarterly performance

The IT company's Q4 performance failed to impress investors. The market was anyway not expecting fireworks from Mphasis.

In fact, the performance was likely to be lacklustre with flat revenue growth. But the company disappointed further, reporting a 4.5% sequential fall in revenue in constant currency terms.

The revenue decline was primarily driven by the mortgage business in the DXC segment, affected by rising interest rates and sluggish US home sales.

The direct international segment also experienced weak Q4 performance due to delayed project ramp-ups, with the banking and insurance verticals significantly impacted.

The company posted a net profit of Rs 4.1 billion (bn) for the period ended 31 March 2023, down 1.7% on a sequential basis. The net profit remained flat due to a slowdown in revenue generation.

#2 Huge US exposure

The company earns a big chunk of revenue from the US markets. It is heavily dependent on the US for its revenues. When a company earns significant revenues from a particular country, it usually has significant banking transactions in the country.

Hence, any crisis in the US is also a threat to Mphasis. Even during the SVB crisis, Mphasis suffered due to its huge exposure in the US.

Based on recent data, the US economy is currently paused on the threshold between a significant mid-cycle soft patch and a formal cycle-ending recession.

The industrial side of the economy, which includes the manufacturing and freight transportation sectors, is already in a significant and prolonged downturn that likely meets the threshold for a recession.

The economy may take a U-turn and come out of recession but as of now, investors are wary.

#3 Weak demand prospects

The turmoil in the US banking sector, especially the collapse of Silicon Valley Bank (SVB) and some others, has shaken the BFSI vertical which accounts for 30-35% of the IT sector's overall revenue.

Also, clients cutting down on discretionary spending in an inflationary business environment and unplanned ramp-down of projects has added to the woes. No wonder the management expects a demand slowdown in the first quarter of the financial year 2024.

Most companies have flagged uncertain demand for the ongoing fiscal year, mainly in the North American market and the banking, financial services and insurance (BFSI) segment.

Even large IT companies like TCS, Wipro, HCL Technologies, etc. reduced their demand outlook for the current financial year.

According to experts even though, Indian IT service providers don't have significant exposure to the US banks impacted by the crisis, the overall exposure of IT service providers to the BFSI sector in North America is significantly high.

As a result, there will be added caution on technology spending in the vertical as they focus more on cost optimisation, which will impact mid-size IT firms like Persistent Systems, Mphasis, Coforge, etc.

Along with the fundamentals, even the technical outlook of IT companies remains dicey. To understand what charts have to say about Indian IT stocks, read our editorial on why IT stocks are falling: A technical view.

How Mphasis shares have performed recently

Mphasis shares have declined by 3.8% in the last five days. The stock is also down 23.8% in the last one year.

The stock of Mphasis touched its 52-week high of Rs 2,616 on 9 June 2022 and a 52-week low quote of Rs 1,660.6 on 17 April 2022.

At the current price, Mphasis trades at a PE multiple of 25.51 and a price-to-book value multiple of 7.2.

About Mphasis

Mphasis is a global information technology services company that specialises in application development and maintenance services, along with infrastructure outsourcing services, and business process outsourcing (BPO) solutions.

The company's core servicing sectors include BFSI, technology and media, and logistics and transportation.

It was once a Hewlett Packard Enterprise subsidiary. However, 56% of the company's stake is now held by the global private equity major Blackstone Plc.

To know more about Mphasis, check out its Mphasis factsheet and quarterly results.

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