shares information on computers software companies Mphasis Ltd

Mphasis Ltd (updated - 26 Feb 2010)
The stock of Mphasis, a major outperformer in the last one year, fell over 8per cent on Thursday, even after the company announced better-than-expected results for the quarter ended January 2010 on Wednesday. The decline can be attributed to fears that a big client, HP/EDS, is tightening purse strings.

Also, while consolidated revenues rose 5.2 per cent sequentially to Rs 1,191.6 crore, it was largely aided by hedging gains (Rs 36 crore compared to Rs 10.7 crore during the same time last year). Had it not been for these gains, the revenue growth would have been in line with most estimates (around 3 per cent).

The banking, financial services and insurance segment maintained momentum, while logistics, transportation and healthcare boosted revenue growth. Technology, however, still continues to be a laggard.

On a closer look, only application services grew at a fast pace, which offset the fall in revenues from information technology off-shoring (ITO) and business process outsourcing (BPO) arms. Application services grew 11.9 per cent, while BPO and ITO declined sequentially by 5.1 per cent and 7.9 per cent, respectively. The decline in BPO revenues was chiefly due to pricing pressures from HP, which accounts for a third of the business. Also, margins of BPO and ITO businesses fell over 500 basis points each due to price cuts. Overall, cushion from the application segment and lower selling, general and administration expenses helped improve operating profit margins by 40 basis points to 26.4 per cent.

At Rs 673, the stock is trading at 14 times estimated 201112 earnings and is expected to underperform until there is further clarity on issues such as pricing outlook from HP/EDS.
source - BS

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Mphasis Ltd (updated - 13 April 2010)
MphasiS’ plans to acquire US-based Remote IT operations management (ROM) company Fortify Infrastructure Services has been taken positively by the markets. The deal value od $15.5 million is the base consideration with an earnout proposition spread over two years depending on the achievement of certain financial metrics.

Fortify, a privately held firm operating in India and the US, reported $20 million revenues in 2008-09 with gross margins of 22 per cent. It has a wide range of ROM offerings that include data centre operations, systems and application infrastructure management, managed security services, network monitoring and management, and virtualisation services.

MphasiS currently has three lines of business — BPO, infrastructure technology outsourcing (ITO), and applications. Fortify will now form afourth business unit, with focus on remote operations and management.

Analysts say the off-shore market does not have any significant players in India. While there are several players in the off-shore infrastructure management services business, most of them follow a component-based approach and do not possess the capability to provide integrated solutions.

“The acquisition is expected to strengthen MphasiS’ position in off-shore ROM services. While most players present in this business have a component-based approach, this acquisition is expected to give end-to-end capabilities to MphasiS,” states Kotak Research.
According to the management, ROM is a $12-billion market globally. Of this, nearly $4 billion is contributed by the off-shore services market. The mid-market segment, on which Mphasis plans to focus, is worth $1.2 billion.

According to Angel Securities, around 60 per cent of Fortifys employee efforts are currently deployed onsite (US), which will act as an off-shoring lever for MphasiS to improve its margins.

After the announcement, the stock added 3 per cent and another 2 per cent on April 12. At Rs 654.90 levels, it trades at 11.9 times 2010-11 analysts’ earnings estimates.
source - Business Standard