Sharp movements in Mphasis pricing surprising: J P Morgan

Mphasis reported Q3FY10 results with revenues of Rs1,280 crore, 7% above estimates although all of the growth was driven by the unexpected price increase in the infrastructure business. EBIT of Rs275 crore was flat q-o-q in absolute terms. Net profit was up 1.5% q-o-q helped by lower tax rates. Infrastructure services business grew sharply by 34% q-o-q. This was driven by: 1) Fortified acquisition in the last quarter; 2) 17% increase in pricing after a decline of 18% just tweo quarters back.

As a result, EBIT margin in this segment improved by 470 bps q-o-q to 39.5%. Given that the ITO business is almost fully driven by HP related work, JP Morgan is surprised by the sharp movements in pricing within a three quarter time period and would wait for further management clarity on this issue. Growth was driven by strength in the BFSI (banking, financial services and insurance), technology and healthcare verticals partly offset by a decline in telecom vertical.

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