MphasiS to hold current margins till yr-end, July 28, 2008

MphasiS has announced its consolidated results for the quarter ended June 2008 (Q1). The company's consolidated net profit was at Rs 79 crore versus Rs 71.4 crore on QoQ basis. The company's Q1 consolidated net revenues were at Rs 742 crore versus Rs 657.6 crore on QoQ basis.

The company’s Management including Jeya Kumar, CEO and Susanto Banerjee, Interim CFO of MphasiS spoke in an exclusive interview with CNBC-TV18. The order book is visibility strong, the Management said. The revenue flow from EDS is likely to be more back-ended. MphasiS sees the EDS revenue share going back to 43-46% range by year-end. There are cost pressures the company’s utilisation is good. The Management said that their billing rates are steady. They should be able to hold margins at current levels. The company’s BFSI revenues are up by 15%, which it is confident of holding.

Excerpts from CNBC-TV18s exclusive interview with Jeya Kumar and Susanto Banerjee:

Q: Could you start off by talking about the order book visibility MphasiS has right now and how much incremental business has come in through this quarter from EDS?

Kumar: The order book visibility is very strong for us. If one looks at our results YoY, the revenue grew 40%, net profit up by 54% and EPS up 54%. We are continuing to see good order book growth.

EDS for the quarter was about 41% of our total revenue and we see that more as being back ended and so we continue to see our growth story.

Q: You said the EDS growth is back ended, by the end of the year what kind of growth do you see from EDS clients and EDS accounts and what proportion would be accounted by EDS?

Kumar: The portion of EDS revenue has always been around 43-46% range and we see getting us back to that range again end of the year.

Q: Do you think you will be able to hold margins in double digits through the next few quarters of the year?

Banerjee: The cost pressures are there but if one looks at the matrix, all the matrix have improved in this particular quarter; Utilization has improved dramatically, the billing rates are steady though we have pressures on vendor rationalization etc , so all the matrix are looking up and we are growing and if the growth continues we should be able to hold the margins

Q: What is it that you are penciling in by way of billing rates especially on the Banks, Financial Services & Insurance (BFSI) side? You have got a bit of forex loss this time, so how are you working with the currency for the next few quarters?

Banerjee: If one looks at the foreign losses, they are lower than the peer companies because traditionally we have not been doing the cash flow hedging, so the forex losses are lower in our case. The way we are going to manage our currency is that we will get into a programmed future cash flow hedging but we will look at that particular line as well.

The BFSI segment in this particular quarter has grown, it has grown in revenues. It has grown by about 16% over the last quarter, the percentage share is also up, so we think we will be able to hold BFSI segment through the year.

Q: What is the final status on the Electronic Data Systems Corporation (EDS) - Hewlett-Packard (HP) merger- will there be an open offer for MphasiS?

Kumar: The EDS-HP is a merger, so they are not compelled to do an open offer right now. I think the EDS-HP merger is still not finalized as yet and as it gets finalized things will roll, become clearer for us.

Q: HP has a significant presence in India as well; do you see any changes in business dynamics post this merger going through for your India operations and business flow?

Kumar: I think it will be more positive. From what we understand of the HP structure in the country, even from a client perspective or from a delivery perspective we don’t see any overlap. I think it should be positive for both the organization.

Q: Are you seeing any billing rate pressure at all which is flowing through on your margins particularly from the BFSI space?

Banerjee: Yes there are little bit of pressures because some of the clients are going through vendor rationalization process. But we are trying to overcome those pressures. During this particular quarter, the billing rates have been steady