MphasiS sees no ease in price pressure

MphasiS sees no ease in price pressure

Bangalore: India’s MphasiS is winning large outsourcing deals due to its relationship with Hewlett-Packard Co but pricing pressure is unlikely to ease in the near term, top officials said on Wednesday.

MphasiS, a mid-sized IT services firm in which HP owns a majority stake, is also not seeing an increase in the IT budget of its clients despite some improvement in the global economic environment.

“The sentiment has improved but whether the IT budgets have been lifted, the answer is no because there will be clearly a lag between sentiment and increase of IT budgets," chief executive Ganesh Ayyar told Reuters in an interview.

“If the IT budgets have not gone up, I don’t see suddenly any sense of euphoria," he said. “Pricing pressure I don’t think will ease."

Indian outsourcers such as MphasiS and bigger local rivals Tata Consultancy Services and Infosys Technologies have won some deals in recent months, but clients have sought price cuts to cope with the downturn.

Ayyar said decision-making continued to be slow in large outsourcing deals, as clients were cautious in their spending.

“People are going to be extra cautious in increasing their cost base because they were caught completely unaware during this crisis," he said. “So, for right reasons people are cautious."

MphasiS, which gets about 70% of its total revenue by providing services to HP and clients of the global tech major, reported a more than doubling of its May-July net profit.

The company changed its fiscal year to November-October, from April-March, with effect from November 2008 to align with HP.

MphasiS’ revenue is seen rising more than three-quarters to Rs4,261 crore ($886 million) in this fiscal from a year ago and net income should more than triple to 8.81 billion, according to Thomson Reuters I/B/E/S. Last month, MphasiS said it would buy the India-based IT services arm of American International Group to boost its offerings for the banking and financial services sector, which brings in 40 percent of its revenue.

Chief financial officer Ganesh Murthy said revenue from AIG’s IT unit would be consolidated with MphasiS from next month.

Murthy said he wanted to maintain operating profit margins, which rose to 21.8% in the May-July quarter from 13.3% a year earlier, by winning deals and cutting costs.

Shares in MphasiS, which has a market value of nearly $3 billion, ended little changed on Wednesday at Rs665.75 in the main Mumbai market that rose 1.6% to 16-month highs. The stock has more than quadrupled so far this year, compared to a 78% jump in the main index.