Mphasis
Tax credit and forex gain save bottomline blues
Mphasis, going through a turnaround phase on being picked up by EDS reported flat quarter performance on account of deferment in decision making in projects in application business as also, lack of replenishment of projects in applications business. For the quarter ended March 2008, Mphasis reported 4% growth in consolidated operating revenues at Rs 657.57 crore on the back 15% in ITO services and 10% growth in BPO services revenues with application revenues stagnant. Operating margins dipped 160bps at 9.9% mainly due drop in onsite utilisation due to project delays resulting in decrease of onsite revenue along with higher investment in delivery capacity . Net profit for the quarter was up 8% at Rs 71.42 crore on the back of tax credit of Rs 45 lakh against tax expense of Rs 3.97 crore in the sequential quarter.
On Y-o-Y basis, consolidated revenues grew 30% with the operating margins dipping 340bps and for the same period net profit was higher by 14%.
For FY08, Mphasis reported 38% growth in operating revenues at Rs 2423.07 crore with 32% growth in applications revenues at Rs 1581.11 crore, 29% growth in BPO revenues at Rs 544.06 crore and 114% growth in ITO revenues at Rs 297.90 crore. Operating margins down 10bps at 11.5% and the consolidated bottomline up 42% at Rs 255.29 crore on the back of 40% dip in tax provision with effective tax rate at 4.1%.
During the quarter, the Group added 17 new clients: 7 new clients and 10 new relationships through EDS channel. These include a US based manufacturing Company; a technology company in Europe and a US based retail Company in Application services and a banking company in Asia Pacific region in BPO services. The group continued to expand the client base and it has now 87 clients down from 89 in the sequential quarter with an annualized run rate of more than US$ 1 million including 7 clients down from 8 clients in the sequential quarter in excess of US$ 20 million.
The manpower strength in Onsite Application increased by 136 employees at 1278 employees and onsite BPO increased by 16 at 99. In offshore, Application saw decrease of 299 employees at 9165 employees, BPO saw increase of 591 employees at 12830 employees and 367 employees in ITO at 3675 employees. The Group headcount increased to 27047 as against 26236 in the sequential quarter.
Overall debtors' days increased to 43 days from 40 days in the sequential quarter and the Group had cash & cash equivalent reserve of Rs 95.25 crore against Rs 183.07 crore at the end of sequential quarter.
Sequential Performance
For the quarter ended March 2008, Mphasis posted 4% growth in its consolidated operating revenue at Rs 657.57 crore. The rupee depreciation benefited the operating revenues. The growth was however lower on account of deferment of decisions on some of the deals in the applications business. In terms of service lines Application services was stagnant at Rs 416.28 crore, BPO services grew 10% at Rs 151.25 crore and Ito services grew 15% at s 90.05 crore.
In industry verticals, BFS was stagnant contributing 39%, Technology & OEMs grew 7% contributing 25%, Telecom was up 5.2% contributing 13%, Logistics, Airlines & Transportation was dipped 2.3% contributing 7%, Manufacturing & Retail was up 13% contributing 13% and Healthcare & Pharma improved 6.1% at 3%.
During the quarter, operating margins dipped 160bps at 9.9% drop in onsite utilisation due to project delays resulting in decrease of onsite revenue along with higher investment in delivery capacity and higher S&M up 50bps at 3.7% and G&A up 30bps at 6.5%.
The gross profit margin of Application Services was down 350bps at 18.6%, of BPO services improved 580bps at 27.7% and of ITO services dipped 80bps at 18.4%.
The resultant operating profits was down 11% at Rs 65.08 crore. Other Income for the quarter stood at Rs 5.89 crore against loss of Rs 2.68 in the sequential quarter. Other Income includes forex gain of Rs 4.18 crore against loss of Rs 4.39 crore in the sequential quarter. PBT was up 1% at Rs 70.97 crore. For the quarter provision for taxation turned credit at Rs 45 lakh on account of higher deferred tax assets created. The resultant net profit was up 8% at Rs 71.42 crore.
Y-o-Y Performance
On Y-o-Y basis, consolidated revenues grew 30% at Rs 657.57 crore. Revenues from Applications services grew 29% mainly due to the healthy growth in technology and OEM vertical. Revenues from BPO grew 21% mainly due to growth in telecom customers and increased volumes in international business from existing clients. Revenue from ITO grew 60% due to increase in volumes in both infrastructure management services and technical help desk services.
Operating margins dipped 340bps at 9.9%. Gross margin of the Applications business slumped 950bps at 18.6%, of BPO Services improved 40bps at 27.7% and of ITO Services improved 250bps at 18.4%. The dip was mainly on account of to the strong appreciation of Indian Rupee against the US Dollar, drop in utilisation rates due to delay in project start date and additional investment in delivery capacity. S&M expenses and G&A expenses decreased as a % of sales by 150bps at 3.7% and 90bps at 6.5% respectively. The resultant operating profit for the period dipped 3% at Rs 65.08 crore.
During the quarter other income stood at Rs 5.89 crore against loss of Rs 72 lakh, which includes forex gain of Rs 4.18 crore against loss of Rs 3.39 crore in the corresponding quarter previous year; thus, PBT was higher by 7% at Rs 70.97 crore. During the quarter, provision for taxation turned credit of Rs 45 lakh on account of deferred tax assets recognized. The resultant net profit for the quarter was higher by 14% at Rs 71.42 crore.
FY08 Performance
For the year ended March 2008, consolidated operating revenue was higher by 38% at Rs 2423.07 crore. Revenues from Applications services grew 32%, with a healthy growth in the technology & OEMs vertical, while BPO revenues grew 32.8% with the increase primarily contributed by Telecom clients and additional volumes in knowledge process business. ITO revenues grew 151.5% both in infrastructure management services and technical help desk services. The revenues were impacted by rupee appreciation.
OPM dipped 10bps at 11.5% impacted by a stronger Indian Rupee to the US Dollar and investment in delivery capacity to support growth negated by lower SG&A expenses. Thus operating profits were up 37% at Rs 279.18 crore. Net other income was expense of Rs 13.02 crore against expense of Rs 6.02 crore in the corresponding previous period. During the year the company incurred forex loss of Rs 21.91 crore against forex loss of Rs 13.35 crore in the previous year. The resultant PBT was up 34% at Rs 266.16 crore. For the year, total tax provision decreased 40% at Rs 10.87 crore with effective tax rate down at 4.1% against 9.2% in the previous year on account of higher deferred tax assets recognized. The resultant net profit for the year was up 42% at Rs 255.29 crore.
Management Comments
Commenting on the results Mr Jeya Kumar, CEO, said
"This fiscal has been one of change & transformation. With EDS as a strong business partner, the Company has been building a solid foundation for development of capability and capacity. Our leadership team is coming to shape and our employee strength continues to grow with over 27,000 people currently. We are expanding aggressively and we continue to add new domain specific services to our portfolio to map the demands of the customer".
Valuation:
Mphasis is trading at Rs 227, which discounts the annualised quarterly EPS of Rs 13.7 by 16.6 times.
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