Mphasis continues to struggle for growth
Latest News »
- McDonald’s terminates franchise agreement with CPRL for 169 restaurants
- China expresses ‘strong dissatisfaction’ with US intellectual property probe
- University of Texas removes Confederate statues
- Tata Motors CEO says to invest Rs4,000 crore to boost car, truck sales
- Trai’s discussion paper on spectrum auction likely this week
Mphasis Ltd’s shares have outperformed the Nifty IT index by 24% since Blackstone Group LP announced its acquisition in April this year.
Thus far, investors’ enthusiasm about the change in ownership hasn’t translated into a meaningful improvement in performance.
On the contrary, Mphasis has continued to struggle for growth.
Last quarter, revenues declined 5.3% year-on-year (y-o-y) in dollar terms to $224.1 million, faring worse than the June quarter, when revenues had declined by 4.1%.
According to the company, its direct international business was impacted by one client, which reduced business because of cost optimization measures.
The direct international business refers to work Mphasis receives from sources other than Hewlett Packard Enterprises (HPE), its erstwhile parent company.
It also excludes the domestic business process outsourcing business.
In the September quarter, the direct business grew just 2.8% on a y-o-y basis, down from the 8.6% growth in the June quarter.
Within this business, the so-called direct mature business segment has also witnessed a drop in growth rates.
Considering that this is the main growth engine for the company, the sharp deceleration is clearly worrying.
Analysts at Nomura Research said in a note to clients, “We see risks to our estimates which build in ~13% CAGR (compound annual growth rate) over FY16-18F in this business.”
The silver lining in the results was that business from HPE rose 1.9% sequentially in dollar terms last quarter, compared with a 4.2% decline in the June quarter.
The company’s post-results commentary suggests the HP business has bottomed out and that it expects moderate growth from this segment in the coming quarters.
But, clearly, no one’s expecting this segment to drive growth.
Unless the direct international business shows signs of a recovery, investors would start questioning the outperformance Mphasis shares have enjoyed this year.