The cloud over whether HP will renew its contract with Bengaluru-based Mphasis has finally been lifted following the inking of the deal. In an interview with BusinessLine , Mphasis CFO V Suryanarayanan shares the company’s plans as well as the challenges faced by mid-size IT companies in another year of slowdown.
In the age of automation, why have margins of mid-size IT companies remained in the range of 14-16 per cent while those of tier-I companies are in excess of 20 per cent?
Large companies always have the benefit of scale. If you see all of us are sub-billion companies and that is where the economics of scale helps the large companies. That helps them get into larger deal sizes (which can be in the region of 3-5 years) and helps them manage their margins better. However, I feel that it is a matter of time when mid-size companies can get close to their kind of margin profile. If you look at it, now some of them are willing to sacrifice their margins for growth. We are not doing that.
Our focus is on Digital and Global Risk and Compliance (GRC), which forms the wrapper for infrastructure outsourcing, BPO and application services. Take an example of infrastructure outsourcing. Earlier, we were managing the tech infrastructure for HP. Now, other clients want these services because they know we have managed it for a company like HP. Clients feel comfortable about the kind of engagement we have with them. Unlike large companies, for us, it is not a one-line item.
Analysts say that most of the revenue momentum seems to be centred around Digital Risk, a company that you acquired. When can we expect broad based growth?
I don't think so. We always aim for broad-based revenue growth. In fact, we are seeing Digital Risk has helped us grow our direct channel business (this is the business that Mphasis gets from HP). Also, revenues from our direct organic business (non-HP business) has gone up 20 per cent when compared on a year-on-year basis.
But there is downward pressure on the HP side of business..
It still continues. While the margins have dipped a bit in this quarter mainly due to seasonality and wage hikes, we stick to the 13-15 per cent.
Nasscom has revised its guidance for the 2017-17 fiscal and the global economy is witnessing slowdown. What impact do you see on the outsourcing sector?
As cost pressures increase, outsourcing and offshoring will go up. Indian companies need to figure out ways to stay relevant to their customers.