Mphasis share hits new high as Street applauds Blink acquisition

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Continuing to grow, the share of the level II IT service provider has reached a new record of ??3,324 in Thursday’s opening trade on the NSE. Mphasis stock rose after Wednesday’s announcement of the acquisition of Blink Interactive, a US-based user experience research and design company. The consideration for this transaction is $ 94 million payable in cash, along with talent retention costs over the next two years.

This acquisition is attractively valued and Blink’s cross-selling synergies would accelerate growth within Mphasis’ BFSI and high-tech verticals, analysts said.

“The acquisition of Blink offers Mphasis the opportunity to increase its front-end design capabilities and engineering-related work, and also to seize more downstream revenue opportunities, which in many cases represent around 10 times upstream income. This fits perfectly with Mphasis’ Front2Back. transformation strategy, ”analysts at Motilal Oswal Financial Services Ltd said in a September 22 report.

It should be noted that Blink has a renowned customer base in the Hi-Tech industry; its client list includes Facebook, Amazon, Microsoft and Google.

“Although Blink’s revenue currently represents only 2.7% of Mphasis’s revenue, this acquisition offers significant growth opportunities,” Prabhudas Lilladher analysts said. with Blink will increase the addressable market share of Mphasis, ”the report added. CAGR is the abbreviation for compound annual growth rate. Blink’s estimated revenue for CY21 is $ 30-35 million.

On the other hand, given the higher depreciation and retention costs, Mphasis management predicted an impact of around 100 basis points (bps) on its margin. A basis point is one hundredth of a percentage point.

Management expects revenue synergies to be realized quickly to ease the margin challenges. However, even after taking this acquisition into account, the Mphasis Ebit margin guidance of 15.5-17% remains unchanged. Ebit is the abbreviation for profit before interest and taxes. Analysts say management’s confidence to protect margins is impressive and bodes well for investor sentiment towards the stock.

That said, analysts at Kotak Institutional Equities point out that the successful integration of the two businesses would be key to achieving revenue synergies. “The integration of creative agencies with service companies is tricky and requires precautions due to cultural differences,” the Kotak report of September 23 said.

Meanwhile, over the past year, Mphasis stock has jumped 135%, significantly outperforming the benchmark Nifty IT, which generated 84% returns over the same period. This strong recovery is due to the solid earnings performance of the company and the strong growth momentum of its organic activities. During the June quarter, Mphasis signed new net contracts worth $ 505 million, the highest on record in the first quarter.

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