MphasiS Ltd’s results for the quarter ended April weren’t as bad the preceding quarter ended January, but they weren’t good either.
Revenue from its top client, Hewlett Packard Co. (HP), continued to decline for the fourth successive quarter. Last quarter, revenue declined by 2.8% after adjusting for the change in the rupee-dollar rate. In dollar terms, revenue from HP fell 17% year-on-year (y-o-y) in the April quarter.
On a y-o-y basis, revenue from the direct channel has risen by 19%. Even so, the results for the April quarter were nothing to write home about as far as revenue growth is concerned.
But MphasiS did manage a surprise improvement of 200 basis points in gross margins, primarily due to an increase in its offshore employee utilization rates. One basis point is 0.01 percentage point.
Utilization rates rose largely due to a cut in the company’s employee base. MphasiS cut its employee strength for the fourth successive quarter, which isn’t a good sign as far as future growth projections are concerned. To be sure, according to analysts at Emkay Global Financial Services Ltd, the company trimmed its annual revenue target to $50-60 million from $90-100 million two quarters ago.
The analysts add, “We see no end to MphasiS’s revenue growth struggle, given the pressure on the HP enterprise services side (54% of revenue), with ramp-ups on the HP non-enterprise services side continuing to be below management’s initial expectations.”
MphasiS shares, meanwhile, have risen by nearly 24% this year, despite the disappointing results in the past two quarters. This is largely driven by expectations of an open offer by its parent firm to buy out minority shareholders.
