MphasiS' Q1 CY09 net profit and revenue stood at Rs 210 crore and
Rs 977 crore respectively. MphasiS Q1 numbers not comparable due
to changes in accounting year. (Also see: MphasiS announces results;
Ganesh Ayyar, CEO, MphasiS, said the company’s focus is on
operational excellence and productivity. “These two things
will take us into the future and is going to be our focus moving
forward apart from focusing on customers.” He feels there
is scope for infrastructure business. “It is a smaller business.
But from MphasiS’ point of view, we see clear growth in that
area and also the BPO business.”
Susanto Banerjee, Interim CFO, MphasiS, said there have been certain
infrastructure and travel related costs which the company has been
able to optimize. “This has also yielded to our margins growth.”
Q: Last quarter you had said that there was no major cancellation
in order flow, yet there were some delays. No major pricing pressure
and EBITDA level margin should be maintained at about 26% odd. Do
you still hold that view or has that changed after this quarter?
Ayyar: The commitment which was given last quarter has clearly
been delivered as you can see for the first time. We have exceeded
Rs 10 in EPS, that’s a first in the history of MphasiS. If
you compare quarter-on-quarter, our net profits have grown by 14.8%
compared to the last quarter and on YoY basis we have grown by 270%
in net profits. So, this has been a phenomenal quarter for MphasiS.
Q: How is the deal pipeline looking to you? Do you expect
that you will be able to maintain this kind of a growth trajectory?
Do you see more offshoring by HP-EDS?
Ayyar: First of all we deal with varied customers. Talking about
the market place, we are operating in the same market as anybody
else, so the market is very volatile as all of you know. If you
look at our Q1 performance, we have retained our customers whether
you look at top 5 or 10. Our relationship with HP and EDS has been
holding good. So, that gives a source of confidence, but at the
same time we really need to be prepared for the future. This is
a market which is going to be uncertain. Focus on operational excellence
and productivity are the two things which will take us into the
future and that is going to be our focus moving forward apart from
focusing on customers.
Q: If you could give us some more clarity on some sort
of the deal flow or revenue flow you expect from the EDS? This is
a three part question. A bit on the BSFI sector because you weren’t
that sanguine about that entire space. Also, if you could give us
some perspective on your exposure to the auto sector as there has
been a bit of concern there and your revenue visibility from that
Ayyar: You commented on two industry vertical – BFSI and
automotive. In BFSI, we have been holding Q1 performance compared
to the prior quarters, so we have held our ground. But that sector
is clearly under pressure especially in discretionary projects and
applications business. I do believe there is scope for infrastructure
business which is a smaller business. So, from MphasiS point of
view, I see clear growth in that area and also the BPO business.
I believe there is scope where we can go and attack with the entire
offering that we have, leveraging on our existing relationship on
That same applies for the auto sector. We need to leverage on the
entire portfolio of MphasiS and retain our position. It is tough.
There is pricing pressure, discretionary projects are getting cut.
At the same time, the decision cycles are getting longer and longer.
In that context, leveraging on our existing customer, ensuring that
we earn their trust and at the same time taking our entire portfolio
to the market will give us that level of confidence.
On the other hand, we also need to ensure that operational efficiency
and productivity remains our focus because that’s the only
two things that we can focus on to ensure that we stay competitive
in this market place.
Q: Let me come to you and ask how you are hedged versus
the rupee? The rupee has been depreciating consistently, so do you
think that improves your visibility or revenue chances and margins
for the first half of FY09?
Banerjee: It is true that the rupee has been depreciating over
a period of time now and we don’t know which way the rupee
is going to go from here. But as mentioned earlier, we do have a
hedging programme on our future revenues. We carry on with that
hedging programme and suitably we have hedged considering the effectiveness
test that we have according to the accounting standards. Then we
hedge our positions in a balanced manner.
Q: One word on HP currently. There have been talks about
them cutting their salaries. How does that impact you? Being an
ex-HP man, what are the talks in terms of an HP-MphasiS merger at
Ayyar: That question is better directed to HP, so I would rather
not comment on what is HP’s plan there. Let me move on to
talk about salary cuts. Our focus is not going to be on cuts but
focusing on how can we move our fixed cost into variable cost and
give people their due when we are performing well. So, Q1 has been
certainly good but we have three quarters ahead. The market is volatile.
There is no question about that. We are more focused on converting
our fixed cost into variable cost. At this point of time we have
not exercised the option of any salary cuts.
Q: What are the margins that the company has managed in
the quarter under review and how are you looking at the margins
planning out considering that the rupee is now working in your favour?
Banerjee: There have been two things. Apart from the rupee which
has depreciated and pulled the margins up there has been the operating
leverage. Some of the operating leverages have performed well. Some
of the operating leverage has not performed well. The operating
leverage which has performed well are the billing rates a little
on a blended basis. We improved on onsite with the high billing
coming from Europe.
The operating lever which didn’t perform so well was utilization.
It was anticipated because we invested in freshers in this particular
quarter and utilization is always a lever which gets tweaked based
on the demand available in the market. There have been certain infrastructure
related costs which we have been able to optimize and travel related
cost which we have been able to optimize which is also yielded to
our margins growth.
Q: Can you give us some guidance in terms of margins and
more importantly can you give us guidance in terms of what kind
of revenue visibility you can see for FY09 or even first-half?
Banerjee: We don’t give a forward guidance on margins. But
this much we can say that we are focused on cost optimization. We
are focused on customers. We are focused on the coverage in terms
of the geography and verticals and we don’t want to lose out
on any customers. We want to win customers in the market place.
There are deals happening in the market place, not that it is absolutely
dry. There are tractions which are seen but the only question is
when those deals are going to translate in revenues and which is
the quarter it is going to translate into revenues in slight sketchy
visibility as of now. But as we progress into the quarters, into
the next quarter, we should be able to get a better visibility around
Q: Similar question to you, even if you cannot give us
a number, do you expect that you will be able to maintain the kind
of revenue that you have or do you think even a contraction is not
Ayyar: Let me turn that question slightly differently – is
that what we should focus on to try and do? That is going to be
the management focus but the challenge during these times to give
any forward guidance. It is absolutely hazardous because the market
is extremely fluid. So at this point of time I will not make any
forward prediction whether we will be able to maintain margins but
that is going to be our focus. We are absolutely focused on getting
our cost structure right, converting our fixed cost into variable
cost. At the same time we really need to go after the market.
Let me give you a little bit more peak – there was a planned
move to invest in sales resources in MphasiS. As a result we are
seeing some rewards. Our ITO business has grown. Our business from
EMEA is growing. So these are all planned activities which are yielding
results. The key question is whether they will continue to yield
result. That time would tell.