Mphasis Q2 net up 24%
Economic Times - October 11, 2004

MUMBAI / BANGALORE: Software services firm MphasiS BFL reported a lower-than-expected 24 per cent rise in quarterly net profit, pinched by foreign exchange losses and rising wages, knocking five per cent off its shares.

The figures set a cautious tone ahead of results from sector bellwether Infosys Technologies on Tuesday and TCS and Wipro later in the week.

Bangalore-based MphasiS, showing strong growth in back-office services, said July-September consolidated net profit rose to Rs 31.51 crore from Rs 25.46 crore a year earlier, but that was a 10.7 per cent drop from a quarter before.

According to the median estimate in a Reuters poll, the firm had been expected to post a Q2 net profit of Rs 34.7 crore.

Revenue rose to Rs 193 crore from Rs 143 crore a year ago, compared with a median estimate of Rs 199 crore.

MphasiS said it suffered a foreign exchange loss of Rs 1.65 crore in the quarter, compared to gains of Rs 4.44 crore a year earlier and Rs 7.5 crore in the previous quarter.

"Going to the next few quarters we do have a few forex losses to go," chief financial officer Ravi Ramu told CNBC television.

"This is in line with our hedging strategy of doing 12-month forwards. So, especially the third quarter and fourth quarter will have these negative numbers coming through foreign exchange."

The rupee, after years of weakening against the dollar, strengthened sharply in 2003, prompting software exporters to hedge. MphasiS shares fell as much as 6.5 per cent after the results and were down 5.6 per cent at Rs 306.95 around 8:55 am GMT at the Bombay Stock Exchange, whose benchmark index was up 0.2 per cent.
An analyst at a domestic brokerage, who asked not to be identified, noted that sales and administrative costs had gone up by Rs 3.6 crore, or 11.6 per cent, on the previous quarter.

"I think sales and general administration is more important than the rupee factor," the analyst said.

Ramu told Reuters in a phone interview that the operating margin was expected to hold steady at 14-16 per cent, while gross margin had improved to 33.2 per cent from 30.8 per cent in the first quarter, thanks to improved work on profitable projects.

But wage pressures in the rebounding industry were hitting cost control.

"Salaries in the industry have been increasing and we can't be an exception," Ramu said.

MphasiS added 17 clients during the quarter. These included two in its back-office services business, which earned revenue of Rs 70.79 crore, up 58 per cent from a year earlier.

The company added 15 clients, but no staff, to its software business in the latest quarter.

It added 275 employees to its back-office unit to take its strength to 5,010 and total headcount to 7,368, Ramu said.