Merger gains - The Financial Express, April 16, 2001

MphasiS BFL: Changing focus

MphasiS-BFL (MBFL), software service up a commendable performance , in the year up to March 2001. Not long ago the then California-based MphasiS and Bangalore-based BFL, as separate entities, suffered from their excessive dependence on a handful of clients and neglect of marketing infrastructure.

In the quarter to March 2001, MBFL has done well with revenue at Rs 51.1 crore, up 51 per cent over that in corresponding quarter of last year. Ever since Barings Pie held equity stake in both MphasiS and BFL and merged the two companies to form - MphasiS-BFL things have changed considerably within a year, Prior to their merger, both of them were incurring losses. Barings held 52 per cent of BFL's equity and was also a shareholder in MphasiS.

The new entity, MBFL, prorides end to end e-business solutions, end has focused on catering to the financial sector (banking, brokerage and insurance), the retail industry, media and telecommunications, tech- nology companies and logistics and supply chain management.

Chairman, Jaithirth (Jerry) Rao, had earlier claimed that the results should reflect the synergy between the two companies by leveraging the combined strengths, without diluting the expertise that the individual company brought. And not surprisingly, the performance is in line with expectations.

Post merger, MBFL has reported a 43 per cent increase in its revenue to Rs 173 crore for the fiscal ended March 2001. Profit before tax stands airs 22 crore, substantially higher than Rs 1.2 crore achieved last year.

This is despite the slowdown in the US markets, US accounts for 70 per cent of the company's revenues, while Europe contributes 20 per cent and the balance comes from Asia-Pacific.The turnaround has been achieved primarily by an increase in productivity, higher price realisation from solution business and higher capacity utilisation at yearly average of 66 per cent (55 per cent). Apart from this, substantial depreciation in the rupee value helped gains from foreign exchange on BSE (in Rs) 115 transaction to the tune of Rs 2.2 crore. They alone accounted for 60 per cent of the other Income.

According to the company release, its employee strength stands reduced in software solution and services to 1,243 as compared to 1.308 employees in the previous year. However, employees In the MphasiS BPO - the call center subsidiary of MBFL - were 178 as on March 31, 2001 as against 37 in the previous year.

As MBFL moves on to higher value addition, it has very lira- Red number of customers. Presently, its customer size has increased from 45 to 64 during the period under review.

But, the company has strategically restricted every client revenue exposure, no client exceeds 10 percen to MBFL rev.

The top ten clients contribute anywhere between 60 per cent to 80 per cent. The client list includes a large global airline, world's largest broker - age houses, the largest credit card companies in the US, the fastest growing bank in Japan. the largest bank in the Middle East. A publishing gain in Europe and a large European Bank About three quarters, ie 75 per cent business Is repeat business.

MBFL was expected to close the year above $60 million and the next year (FY02) at $100 million plus. Although the company so far has neither experienced any cutback in demand for its services nor any pressure to revise its billing rates, but considering the slow - down in the US, It may have to pull up its socks to achieve the set target.

It has taken initiative to pursue European and Japanese markets aggressively. That strategy should dilute the impact of demand contraction in the US. The company has a modest market penetration in the financial sector and has yet to penetrate mutual fund and insurance sectors in the US.

Also its second initiative to strengthen and expand the India-based subsidiary, MphasiS BPO, must add to Its topline, MphasiS BPO, which has four customers, achieved revenues of $1.12 million in the year ended March 31.200I and $0.59 million in the fourth quarter. The financials of MBFL (unconsolidated) as per GAAP include in tar company revenues of $ 3.1 million and $4.8 million.In the quarter and financial year ended March 31,2001 respectively.

The company, on the conservative side, has decided to show amortisation of goodwill in the consolidated income statement,in the future the company may not benefit from this provision According to the latest FASB (Financial Accounting Standards Board) proposal, the company can dispense with the amortization of goodwill entirely.

Laxmikant Khanvilkar