Stocks Update - MphasiS and Tata Motor

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BSE Index

MphasiS : Lower HP Non-ES Rev Guidance Disappoints......

Reco : Hold    Cmp : 392    Target : 373

Weakness in HP business (~58% revenue share; down 4% QoQ in USD terms) and continued momentum in non-HP business (9% QoQ growth) were key highlights of MphasiS⊑1FY12 performance. While the weakness in HP ES^ business was expected, major disappointment came in from management indication of USD 75-80 mn revenue from HP non-ES business in FY12 (vs. USD 90-100 mn earlier). We cut our EPS estimates for FY12 and FY13 by 2% and 4% respectively to factor in lower volume visibility from HP non-ES business.

We roll forward our TP to FY13E (year ending October) based on 9x EPS of Rs 41.5 to Rs 373. Given the stock is up 30% in last 2 months, we downgrade our rating to HOLD. Key risk to estimates: Pricing pressure from HP (MSA renewal with HP in Oct ).

Growth in non-ES HP business critical: Revenue from HP ES business fell ~3% in USD terms, while the HP non-ES revenue fell ~8% QoQ (albeit from a low base of USD12 mn in Q4 to USD 11 mn in Q1). We believe non-ES business is key to offset potential revenue decline in HP ES business (given parent HPⳠweak Q1FY12 Services revenue performance) and would watch for sustained growth momentum in the segment.

Tata Motor - DVR.....

Reco : Buy    Cmp : 148    Target : 184

Differential voting rights (DVR) share have different voting rights compared to an ordinary share e.g. Tata Motors' DVR share will have only 10% voting right compared to its ordinary share. These shares have a different dividend rate. e.g. In case of Tata Motors, the dividend for DVR has been fixed at 5% (of the face value) higher than ordinary shares e.g. In FY 11, company gave  Rs 4 per share as  dividend (200% on Rs 2/- face value) on ordinary shares and Rs 4.10 (205% on Rs 2/- face value) to per DVR holder. Apart from less voting rights & higher dividend there is no difference between intrinsic ownership rights of DVR & ordinary shares.

We recommend to Invest in TATA Motor DVR with the following Investment Rational:

Management with utmost quality of corporate governance: TATA, the promoters of Tata motors, is considered to be one of the finest institutions amongst the corporate sector; hence a steep discount (~44%) to the ordinary shares, is unwarranted.

Promoter stake sale improves liquidity: Initially, illiquidity and lack of institutional interest has seen DVR trade at a wide discount to the original stock. Probably, it does not make sense for the promoters to hold these shares with 1/10th voting rights.