Information technology (IT) services provider MphasiS Ltd, owned by Hewlett-Packard Co. (HP), has reported strong results for the quarter ended January, defying the slowdown which caused most IT firms to report weak numbers for the December quarter.
MphasiS follows the November-October fiscal year to align with the practice followed at HP.
Revenues grew by a strong 9.3% sequentially and net profit rose by nearly 15% between the three months to January, much higher than the low single-digit growth rates most IT firms reported for the December quarter.
The secret to MphasiS’ success lies in its parentage. HP and its services arm EDS outsource some of their work to MphasiS to cut costs. While software services work coming to the HP group has been affected owing to the slowdown, this hasn’t impacted the work flow pushed down to MphasiS because of the large difference in the size of the two firms.
The HP group reported services revenues of $8.75 billion (Rs44,362 crore) in the January quarter, while MphasiS’ revenues stood at around $200 million. Now, MphasiS derives 45% of its revenues from work pushed down by HP. This amounts to just about 1% of HP’s total services revenues. Even if, for arguement’s sake, HP’s services revenues fall by half owing to the slowdown, the quarterly revenues of around $100 MphasiS derives from HP is hardly at risk. HP contributed to 40% of revenues till October, which indicates its contribution has grown in the last quarter.
It’s not that all the credit of MphasiS’ better-than-industry performance goes to HP. The company has done well to contain costs and take full advantage of the depreciation in the rupee. According to the company’s chief financial officer, Susanto Banerjee, in the past year the company has improved employee utilization, pulled back on travel, and invested in sales and marketing.
But it’s clear that it doesn’t make sense to infer from MphasiS’ results that the IT industry isn’t in trouble. MphasiS’ business model is unique because of the work it gets from HP. Still, the market has valued it at only around 4.5 times annualized earnings for the January quarter.
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