The second quarter has seen software services turning around smartly, says MphasiS Chairman Jerry Rao.

MphasiS' second quarter net profit beat most analysts' expectations and the company has decided to stick to its annual guidance. Chairman Jerry Rao said one of the main reasons for the growth is the ramp-up of business from existing clients. He said one of the highlights of the second quarter was the substantial quarter-on-quarter, QoQ, growth in the company's software services business.

Despite the good results this quarter, Rao said the company has taken a conscious decision not to give out a quarterly guidance and stick to the annual one instead. "Unless there is a major reason to change it, we will not do so. We will just reaffirm our guidance. If we do better, then so be it," he said.

For FY03, MphasiS expects revenues to grow 25-30% to Rs 387.5-403 crore (Rs 3.87-4.03 billion) and net profit to grow 60-70% to Rs 64-68 crore (Rs 640-680 million).

But Rao sees pricing pressure continuing. "We don't see any great positive trend there. But it's not precipitously declining either," he said.

MphasiS BFL's second quarter consolidated net profit jumped 60.97% to Rs 16.13 crore (Rs 161.3 million), as against Rs 10.02 crore (Rs 100.2 million), in the same quarter last year. On a QoQ basis, this is a 16.12% growth. Net sales went up 35.06% year-on-year, YoY, to Rs 102.89 crore (Rs 1.03 billion). On a QoQ basis, it was up 14.9%.

A CNBC India poll had estimated its consolidated net profit to be Rs 14.19 crore (Rs 141.9 million). The poll had estimated consolidated net sales at Rs 94.87 crore (Rs 948.7 million).

Revenues from its business process outsourcing, BPO, venture MphasiS BPO also grew 50%. Rao said that MphasiS BPO added three clients this quarter and is now targeting clients in the non-financial areas too. "We have also been able to do some good cross sales to one of our major software services customer, who has now become a non-financial BPO customer," he said. Rao is satisfied with the quality of MphasiS BPO 's growth.

According to Rao, MphasiS has managed to restore its growth margins to more than 40%, because of better utilisation. "Some of the work which had to start in the next quarter has started this quarter," he added.

He also pointed out that the general and administrative expenses have come down as a result of stringent controls. But he attributes the fall in expenses from 15% of revenue to 11.5%, to both cost control and a rising topline. "This was something we had been planning in the last four quarters as part of our medium-term strategy," he said.

He denied talks that MphasiS' key accounts are not ramping up business and that MphasiS is not adding big customers. "We have added a major bank and a major brokerage house recently. One of our existing clients, a large courier company, has also started ramping up," he said.

Rao is not very optimistic about the US market and does not expect robust spending to come back before the second half of 2003. He also ruled out chances of a 20-30% QoQ growth before Q2 CY03. But he said that Indian companies, especially the big ones, are benefitting as a lot of work is coming into India. He feels MphasiS is lucky to be one of the few mid-tier companies that are getting good business.