MphasiS reduces exposure to government deals

Mid-size software services firm MphasiS Ltd is gradually reducing its exposure to Indian Government contracts even as it increases investment in sales and marketing, according to an official.

There are plans to exit at least two Government contracts worth between Rs 60 crore and Rs 70 crore, which could result in a minor loss, said the official who did not want to be named. The company had said last year that it would completely exit Indian Government contracts.

Sources in the company said the entire process of winning a government contract right from the bidding stage takes a long time, leading to locking up human resources. Also, these are typically low margin contracts and, hence, they are no longer preferred. Even Wipro, the country’s third largest software exporter, has reduced the number of government contracts over a period of time for similar reasons.

Falling HP contribution MphasiS counts parent Hewlett-Packard (HP) as its top customer, but orders from the US-based company has also been falling. HP’s contribution to revenue is likely to drop further by 20-25 per cent from the current level of 40 per cent.

In an earnings conference call last year, MphasiS top executives said the decline was a cause of worry and it is exploring possibilities to arrest the fall by focusing on a differentiated value proposition. “But at this juncture, we have not managed to crack the code and we would continue to explore that possibility and explore how we move forward.”

A spokesperson for MphasiS declined to give more details saying the company was in a silent period ahead of its results.

The company is also increasing its investment in sales and marketing and has beefed up efforts for having abetter deal pipeline.

Four large deals In an analyst call, the company’s executives said MphasiS is chasing four large deals and will continue to work on margin levels. In the long term, there will be focus on non-T&M (time and material) contracts to increase productivity with incentives structure linked to wins from these projects. In the shorter term, the tenure of hedges has been reduced to one year from two.

The company told analysts that their acquisition of Digital Risk has been paying them dividends. Digital Risk now has an annual revenue run rate of $185 million, which is about 50 per cent growth from $127 million at the time of acquisition.