MphasiS Ltd has attempted to calm investor nerves by disclosing a few additional details about its financial performance for the quarter ended January. The company’s shares had fallen by as much as 28% after analysts cried foul about the drop in disclosure standards.
Besides, a number of analysts covering the company said that the company’s largest customer, Hewlett-Packard Co. (HP), is driving sharp price cuts, which in turn is diminishing the shareholder value of MphasiS. HP accounts for roughly 70% of MphasiS’ revenues.
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But even while MphasiS has succumbed to pressure from investors and analysts and provided additional financial details such as billing rates, the larger concern about HP driving sharp price cuts remains.
It’s not surprising then that the company’s shares rose by just 2% after it disclosed the additional details. Since the time the results were announced, the stock is still down by 26.5%.
The billing rate details released by the company last Thursday reveal that average price realizations in the mainstay applications services business (64% of total revenues) fell by 5% quarter-on-quarter (q-o-q).
Similarly, the average price realizations in the ITO (infrastructure technology outsourcing) services business (24% of total revenues) fell by 5% q-o-q. An analyst with a foreign brokerage, who attended the post-results earnings call on 25 February, said the management had then suggested that average billing rates had fallen by 1%. This, according to him, points to further inconsistencies in reporting.
Analysts were already miffed because the company failed to disclose certain one-off revenues in the December quarter when it announced results for those three months. Instead, while defending poor performance in the January quarter, the company said that the December quarter represented a high base because of certain one-off revenues.
Chief executive officer Ganesh Ayyar added in an interview with the CNBC-TV18 news channel that business from HP has become sluggish.
The company’s results, therefore, should continue to be weak in the near term. It seems unlikely that the damage done by the January quarter results will be undone soon.
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