Mpha­sis to Gain from Fo­cus on Di­rect Biz Un­der New Own­ers

The Economic Times - - Commodities & Markets - Ran­jit.Shinde@ times­group.com of Mpha­sis

ET In­tel­li­gence Group: Af­ter lead­ing a rather low-pro­file ex­is­tence be­lea­guered by sub­dued growth over the past five years, Mpha­sis has come to the fore once again. In the first week of April, pri­vate equity com­pany Black­stone Cap­i­tal Part­ners an­nounced plans to ac­quire a con­trol­ling stake in the Ben­galuru-head­quar­tered soft­ware ex­porter. This is ex­pected to add fo­cus to its strate­gies and help it re­duce its de­pen­dence on the erst­while par­ent HP En­ter­prises. Long-term in­vestors may find the cur­rent val­u­a­tion of the stock suitable to con­sider it for fur­ther re­search.

Mpha­sis re­ported a som­bre fi­nan­cial per­for­mance over the years. From FY10 to FY15, its rev­enue grew EBITDA mar­gin

at an an­nu­alised rate of 3% to .₹ 5,794 crore. Net profit dropped from .₹ 1,090.8 crore in FY10 to .₹ 674.6 crore. It shifted its year end­ing month from Oc­to­ber to March in 2014.

A ma­jor fac­tor re­spon­si­ble for this lack­lus­tre per­for­mance was the com­pany’s de­pen­dence on the par­ent, HP. In the fis­cal ended Oc­to­ber 2010, it had earned as much as 71% rev­enue from the HP chan­nel.

Over the years, this busi­ness stre-

am de­clined grad­u­ally, which prompted Mpha­sis to fo­cus more on the di­rect busi­ness chan­nel where it started ap­proach­ing clients for projects. In hind­sight, the strat­egy looks timely since it pre­vented the topline from shrink­ing sig­nif­i­cantly in the fol­low­ing years as the HP chan­nel rev­enue shrank even more.

In the fis­cal ended March 2015, Mpha­sis earned 69% rev­enue from the di­rect chan­nel while the rest was from the HP chan­nel. As the com­pany gears up to op­er­ate un­der the new own­er­ship, the di­rect chan­nel will play a ma­jor role in its growth. The mo­men­tum in the di­rect chan­nel has in­creased. In the nine months to De­cem­ber 2015, the di­rect chan­nel bagged or­ders worth $230 mil­lion com­pared with $264 mil­lion in the whole of the pre­vi­ous fis­cal. The com­pany aims to cross the $300mil­lion mark in the con­tract value from the di­rect chan­nel by the fis­cal end.

As part of the deal be­tween HP and Black­stone, Mpha­sis will get busi­ness worth $990 mil­lion (ap­prox .₹ 6,630 crore) from HP over the next five years. The man­age­ment hopes to win more projects through this ar­range­ment. The com­pany ex­pects to re­tain op­er­at­ing mar­gin be­fore de­pre­ci­a­tion in the range of 1315% in the medium term. Its cash bal­ance was .₹ 2,726.5 crore as on De­cem­ber 2015. Change in own­er­ship is ex­pected to help Mpha­sis seek op­por­tu­ni­ties to sell ser­vices to other com­pa­nies that fall un­der Black­stone’s um­brella. At Fri­day’s clos­ing price of .₹ 488.3, the stock was val­ued at a trail­ing price-earn­ing ra­tio of 15 com­pared with 17-20 for peers.

In the fis­cal ended March 2015, Mpha­sis earned 69% rev­enue from di­rect chan­nel while the rest was from the HP chan­nel

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