Mphasis revenue continues to fall as HP weakness hurts

MUMBAI: Mid-size software services firm Mphasis Ltd continued its trend of posting successive declines in revenue, as it continues to face headwinds from the weakness of its parent company HP and its US mortgage market dependent-digital risk segment.

Hewlett Packard owns a little over 60% of Mphasis and contributes about 36% to its revenues. But as the technology giant has struggled to win deals globally, the amount of work flowing through to its Indian unit has also dropped.

Analysts have pointed out that revenue from the HP-channel has dropped about 53% over the last three years and that the decline is likely to continue.

Mphasis said its consolidated net revenues dropped 1.7% sequentially to Rs 1,465 crore in the second quarter, while net profit dropped 8.4% sequentially to Rs 160.2 crore. The company’s net margin contracted to 10.9% in the quarter.

HP channel revenues fell 3.1%, while direct revenues fell 2.1%, due to weakness in the emerging markets.

However, the company said it won $65 million worth of deals in the second quarter.

“We continue to see good traction in our direct organic business. Our focus on GRC, Digital and AMS is paying off” said Ganesh Ayyar, Chief Executive Officer- Mphasis, said in a statement. Direct selling revenue from mature markets increased 2.5%.

Mphasis has also received assessment notices for the tax years from 2003 to 2010 due to transfer pricing issues. The company said it has filed appeals against the notices.

“Currently, they have a lot of problems but the deal wins are encouraging. They need more consistent and bigger wins to offset the impact of HP and the direct risk business. The uncertainty over the potential HP sale is also hurting,” an analyst with an Indian-brokerage, who declined to be identified, told ET.

Mphasis is often pointed to as the next buy-out target in the IT industry, as HP struggles with its businesses.