Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
MphasiS: BPO focus paying off… - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Oct 9, 2003

    MphasiS: BPO focus paying off…

    MphasiS has reported strong performance for the September quarter with the topline and bottomline growing by 10% and 31% respectively on a sequential basis. The performance on the half-yearly basis has also been good for MphasiS (YoY growth in topline has been 42% while the profits are up by around 50%). While the company has improved upon its operating margins for the quarter by about 200 basis points, for 1HFY04, margins are lower by 300 basis points.

    Financial performance: A snapshot...
    (Rs m) 1QFY04 2QFY04 Change 1HFY03 1HFY04 Change
    Sales 1,302 1,429 9.8% 1,924 2,732 41.9%
    Other Income 28 39 39.7% 1 67 -
    Expenditure 1,127 1,210 7.4% 1,591 2,337 46.8%
    Operating Profit (EBDIT)** 175 219 25.2% 333 395 18.5%
    Operating Profit Margin (%) 13.5% 15.3%   17.3% 14.4%  
    Interest (8) (8) 3.6% (15) (15) 1.4%
    Depreciation - - - - - -
    Profit before Tax 211 266 26.3% 349 477 36.5%
    Extraordinary items - -   - - -
    Tax 16 12 -26.5% 49 27 -44.5%
    Profit after Tax/(Loss) 195 255 30.6% 300 450 49.7%
    Net profit margin (%) 15.0% 17.8%   15.6% 16.5%  
    No. of Shares 34.6 34.6   34.6 34.6  
    Diluted Earnings per share* (Rs) 22.5 29.4   17.4 26.0  
    P/E Ratio (x)   17.9     20.3  
    * annualised            
    ** Includes depreciation and amortisation of ESOPs

    Higher volume growth of 11% in the software services business has translated into a 6% rise in revenues sequentially. Also, MsourcE, the BPO unit witnessed a 19% growth in its revenues. The contribution of MsourcE to total revenues has now increased from 29% in 1QFY04 to 31% in this quarter. Growing revenue contribution from MsourcE is in line with the management’s objective.

    On the hiring front, net additions have slowed down to 18 for MsourcE in 2QFY04. This is lower compared to 1QFY04 when the BPO division added 533 people in a single quarter. The total staff strength at MsourcE now stands at 3,138 and the company plans to take this tally to 4,000 by the end of FY04. For the software services business, the net addition to employees was 125. In 2QFY04, MphasiS added 5 new clients (12 in 1QFY04), including 1 (2 in 1QFY04) in MsourcE.

    Improving efficiencies…
    Operating margins* 2QFY03 3QFY03 4QFY03 1QFY04 2QFY04
    Mphasis 21.0% 24.3% 25.5% 20.5% 20.4%
    MsourcE 9.7% -3.0% -10.4% -3.8% 4.4%
    Consolidated 18.9% 19.1% 16.4% 13.5% 15.3%
    *includes depreciation

    One of the most notable features of the September quarter results has been the positive shift that MsourcE has made on the operating margins front. From remaining negative during the past three quarters, the operating margins for the unit are now 4.4%. This is a likely result of the reduced level of hiring that MsourcE undertook during the quarter as well as strong growth in revenues from this division. Also, rationalization on the other expenses front helped the unit in improving upon its operational efficiency. While the improvement in the operating margins of MsourcE has been encouraging, the software division’s margins have shown a volatile movement in the last five quarters. While there has been margin improvement in the software division in FY03 the same has not been seen in FY04. This is a concerning aspect of the company’s performance.

    Overall profitability of the consolidated entity has improved on account of reduced (as percentage of revenues) levels of employee and general costs. As percentage of revenues, while cost of revenues dropped from 71% in 1QFY04 to 68% in this quarter, general and administrative costs have declined marginally. Margins for 2QFY04 have also improved on account of higher utilization on MsourcE front (68%).

    Net profits for MphasiS have also been boosted by reduced taxation liabilities and substantial increase in other income. The latter has improved substantially due to foreign exchange gains of Rs 32 m on account of hedging of receivables that the company undertook as a safeguard against the effects of an appreciating rupee.

    At the current market price of Rs 534, the stock is trading at a P/E multiple of 20x its annualized 1HFY04 earnings. In absence of any announcement by management regarding its guidance, we believe that the earlier guidance of 30%-35% growth in revenues (100% growth in ITES revenues) and 40%-45% growth in profits stands. The fact that MsourcE’s margins have turned into the positive after remaining in the negative for the past three quarters implies that the group’s focus on the BPO segment has started to pay dividends. However, with large size orders still to come MphasiS’ way, optimism regarding the company’s performance in the future should be reserved. Investors need to apply caution and wait for some more time before the company displays positive performance on a sustainable basis.



    Equitymaster requests your view! Post a comment on "MphasiS: BPO focus paying off…". Click here!


    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    Ankit Shah's First Five Insider Recommendations (The 5 Minute Wrapup)

    Aug 5, 2017

    How to get exclusive insider recommendations from Ankit Shah.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE IT

    Aug 21, 2017 (Close)