AIGSS buy, HP ties to keep MphasiS's tempo high

For MphasiS, 2009 has been the year of resurrection. The IT services company, which was struggling to grow not long ago, reported a sharp 44% rise in revenue and a two-fold jump in profit after tax (PAT) during the year ended October 2009. And all of this growth has been on the pure organic front without any acquisitions.

With an annual revenue of Rs 4,283.3 crore and a PAT of Rs 908 crore, the erstwhile mid-tier IT company is fast moving into the top league of Indian IT exporters. It now stands sixth in the IT pecking order.

The turnaround in MphasiS’ fortune during the year has been remarkable when compared with the lower double-digit growth reported by some of its bigger peers in a highly uncertain global economic climate. MphasiS’ stellar performance was largely a result of its association with HP.

HP acquired MphasiS’ parent EDS in May 2008.

Since then, MphasiS has seen a higher growth in its key business segments, including application services (a 43% growth in 2009 revenue) and infrastructure technology outsourcing (ITO) business (an 85% jump). Both these divisions constitute over 90% of total revenue, with the rest coming from BPO operations.

With the HP’s entry, MphasiS has seen a slew of deals coming its way. In the October 2009 quarter, out of 16 new deals that MphasiS bagged, as many as 13 were from the HP channel. Not only has the number of deals increased, but the average size of the deals has also gone up.

MphasiS has also improved efficiency of its operations in terms of employee utilisation and management of its sales outstanding. In the October quarter, employee utilisation reached 82%, including trainees, because the company decided not to recruit new employees except for adding 700 employees of AIGSS, the software division of AIG, which it acquired in August 2009.

It now takes 72 days on average to collect receivables, 11 days fewer than the year ago. Despite its impressive performance, MphasiS’ stock fell by 4% to Rs 668.5 on Wednesday.

Analysts from Emkay Global Financial Services and Kotak Institutional Equities Research feel that much of the future upside in MphasiS’ business has already been captured in its current price-earnings multiple of over 16.

The full impact of AIGSS’ acquisition would be visible in the next quarter. This, coupled with the thrust from HP’s channel, is expected to keep the tempo high for MphasiS in the coming quarters.