Mumbai: Mid-sized Indian outsourcer MphasiS expects its operating margins to stabilise at 20-21% in next two quarters, a top official told Reuters on Friday, a day after the company posted a 15% decline in January-quarter profit.
Shares of the company, which the market values at $2.92 billion, plunged as much as 27% to Rs458, their lowest in nearly 19 months. At 1.24 p.m., the stock was down 24.18% at Rs475.
“Margins are quite low. We have certain levers like utilisation, which has fallen drastically, which we will use to improve margins,” Ganesh Murthy said.
“Subject to exchange rate fluctuations, in a couple of quarters we should be able to stabilise.”
MphasiS, which follows a November-October financial year, had clocked January-quarter operating margins of 18%, down from 21.9% in the October quarter.
On Thursday, MphasiS posted a consolidated net profit of Rs230 crore compared with Rs270 crore a year ago.
Brokerage CLSA cut its FY12 profit forecast for MhpasiS by 25-27% and maintained its “sell” rating on the stock, expecting a steady deterioration in the financials of the company. The brokerage cut the stock’s price target to Rs490 from Rs550.
Revenue took a 3.5% hit as the company also saw sluggishness in Hewlett-Packard Co (HP) channel business, Murthy said.
HP owns 60.53% stake in MphasiS, according to Reuters data, and also accounts for about 70% of its revenue.
“We are not very optimistic on HP channel revenue. Essentially, HP itself in the services business has not been growing,” Murthy said.
Earlier this week, HP trimmed its 2011 revenue projections on weak consumer PC demand and a lackluster showing from its IT services arm.
MphasiS is trying to increase its presence in the emerging markets, in an attempt to reduce its dependance on the HP business.
Last week, MhpasiS received a letter of intent from the government for a two-year project worth Rs840 million as part of the Unique Indentification (UID) programme, he said.
Separately, the company has also been shortlisted for another UID project in a state, he added.
MphasiS, which has a cash pile of Rs1785 crore, is in talks to acquire companies in the banking, capital markets and insurance space, and expects to close a deal in the next two or three quarters, Murthy said.
The company is looking at targets with a revenue of about $200 million.
Banking and capital markets accounted for 26% of the company’s January-quarter revenue, while the insurance segment accounted for 9%.
The Bangalore-based company, which gets about two-thirds of its revenue from the US, had in 2009 bought AIG’s Indian IT services unit. Last year, it picked up privately held Fortify Infrastructure Services for $15.5 million.
The company, which recently established a near-shoring centre for European clients in Poland, plans to establish another centre in the US by the end of the current quarter.
“It will be in a sort of a low-cost jurisdiction. It is a requirement of some of our US-based customers,” Murthy said, adding the plan is in initial stages as of now, and the company has not earmarked the expected capital expenditure yet.