MphasiS may see $100 million drop in HP business next year

BANGALORE: Declining business from its largest customer and shareholder, Hewlett-Packard, is back to haunt mid-sized technology services company MphasiS, the management has told analysts.

The Bangalore-based company estimates revenues from HP, , which holds nearly 60% stake, will come down by as much as $100 million (Rs610 crore) next year, higher than earlier expectations as HP lost some technology outsourcing contracts that were up for renewal, Pinku Pappan and Ashwin Mehta of Nomura Equity Research wrote in a client note. Besides internal IT work for HP, most business that MphasiS gets from its largest shareholder is related to outsourcing clients of HP. The company has seen a declining trend in pricing in the work it gets from HP.

Over the past several quarters, MphasiS has been trying to increase its non-HP business. HP’s contribution to its revenues has come down from around 70% to about 45% over the last 3-4 years.

Analysts are forecasting a marginal growth to a sequential decline in revenue for its fourth quarter and fiscal year ending October 30. From next year onwards, MphasiS will move to an April-March financial year. Its stock has lost over 15% since May end, when it touched a 12-month high of Rs513 on BSE.

Analysts said the fourth quarter could also see a revenue impact from ramp-down in work from a large customer and MphasiS exiting Indian government contracts. “Ramp-downs in the Indian PSU business and a clientspecific reduction in mature markets will hurt revenues in Q4, in addition to the drag from India government business,” Rumit Dugar and Udit Garg of Religare Institutional Research said.

According to the Nomura analysts, MphasiS is also trying to sell this part of the business as well as the El Dorado business it acquired several years ago. An MphasiS spokesperson said the company would not like to comment on the subject.

MphasiS could also look at another large acquisition to offset the falling revenues from HP.