The September quarter results of software companies have thrown up new realities. While the top rung software companies have done well to protect their turf and grow at a better than expected rate. Second rung software companies have struggled. There have however been a few exceptions like Mphasis BFL that have performed better than expected.
Of the total revenues, IT consulting and architecture contributes about 5% to Mphasis's revenues, while the contribution from the e-solutions space is about 40% to 45%. The remaining 50% to 55% comes from traditional business like development, support and maintenance. The company has a special focus on the on BFSI (banking, financial services and insurance), logistics & airlines verticals. To add pace to the topline growth, the company has also ventured into the IT enabled services segment with a subsidiary called MsourcE.
In the IT enabled services segment the company’s offerings include call centers & business processes outsourcing (BPO). The company’s revenues from the call centre business, which is carried out by the subsidiary MsourcE, have shown rapid growth. The figure has grown from Rs 51m in FY01 to Rs 234 m in FY02. This amounts to a growth of almost 360%. The company expects MsourcE to break even by the end of fiscal FY02. Once the company breaks even the operating margins are likely to improve considerably.
Having enumerated the positive aspects of the company’s prospects we must also point out the concerns. The biggest concern regarding the company is the low visibility in earnings. The management had given a guidance of revenues to the tune US$ 100 m in FY02. This translated to a 30% growth. However, due to the impact of the slowdown the management had to scale down its revenue guidance. The revenue growth was just about 14.6% for FY02. Infact revenues from the services business have shown a comparatively poor growth rate of 8% compared to the industry average of 22%.
BFL has been dependent on a few large customers. The top 10 clients contribute 65% to the revenues. The company wants to keep the figure above 60%. FedEx contributes to more than 10% of its revenues and Compaq contributes around 7%. Any negatives in the relationship with either of these two clients could severely impact the company’s revenues. FedEx is the company’s only clients that bills over US$ 10 m. It would be very difficult for Mphasis to establish another relationship of a similar nature.
For more detailed analysis with projections, view our complete research report on Mphasis BFL.
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