|MphasiS BFL: Buy on declines|
SHAREHOLDERS of MphasiS BFL can capitalise on the decline in price to raise exposures. The stock now trades at a multiple of around 15 times the earnings for the year ended March 2003.
In terms of profit
growth, MphasiS BFL's performance was unsatisfactory. Gross profits fell
5.4 per cent in the quarter ended March 2003 compared to the quarter ended
December 2002. Net profits, however, rose 3 per cent because of the decline
in both selling expenses and provision for doubtful debts. Higher `other
income' also muted the impact of a decline in operating profits.
Promise of growth
in the employee base in MphasiS BFL's software services business is encouraging.
The software service business of relatively small sized companies such as
MphasiS BFL has been struggling to register growth. The March quarter was
unimpressive for MphasiS BFL with sequential growth over the previous quarter
restricted to less than 1 per cent.
Scope for growth
MphasiS BFL's valuation multiples suggest that higher growth rates for more than a year is built into the stock price. Even on expected earnings for the year ended March 2004, the stock trades at a multiple of around 11.
If the blistering pace of revenue growth in BPO continues such high earnings growth rates are possible. The potential for BPO, as of now, appears quite robust. In this context, MphasiS BFL's stock appears poised to deliver reasonable returns.
Suitability: The risk involved in investing in stocks of growth companies is relatively high because of the uncertainty over earnings growth rates. This is true for MphasiS too.