Mphasis, recently sold its BPO voice business. In an interview with BusinessLine , V Suryanarayanan, CFO of Mphasis, says it was a strategic move to exit non-core businesses and keep it to just those verticals that bolster margins and enhance company’s digital and GRC offerings. Further, he added that the focus is now on direct business as HP is facing a slowdown.
Why did you recently sell the Indian voice business?
The selling of the voice business, which was the call centre operations for the domestic market, was in line with our strategy to move out of businesses other than BFSI.
Also, keeping in mind margins of the company, we felt that the voice business had to be sold.
In the BFSI segment, we have very good client base and we want to build on our strengths in this space. Within BFSI, we want to be focused on digital and GRC (Governance, risk and compliance). All business houses today are realising that to keep pace with the competition they have to get closer to their client and this is possible only through digital solutions. So, we are helping our clients in digital transformation of their business.
On the GRC front again, there is large potential. For instance, we hear of financial institutions in the US , paying huge fines because they have not complied with various statutes related to extending credit.
We help businesses comply with regulations and build a platform for them to do it in an automated way. From a strategy perspective, we want to be focused in the BFSI segment and within BFSI clearly on digital and GRC.
Why is HP’s contribution to your revenues coming down? With the agreement coming up for renewal are you going to ask them for an assurance on the rate or number of orders?
The pain is because HP is facing slowdown in its business. But, see, HP enterprise has around $20 billion (revenue in a year) and we are doing around $280 million work for them.
There is a clear Chinese wall between HP holding a stake in us and we being a vendor to them. So what I am saying is they have their own strategies and they always look to optimise their operations while dealing with us, as a sub–contractor.
Now the MSA (master service agreement) as such is coming for renewal only in February, but, changes in rates or any clause happen anytime and not necessarily only at the time of renewal of the agreement. The dialogue with HP enterprise management on offerings and increasing our scope of engagement doesn’t happen only at the time of renewal, it’s a constant engagement and we keep doing it.
What are you doing for your direct channel business?
In the last two-three quarters, our direct channel has seen a good traction in orders.
About 60 per cent of our wins have been in digital and GRC space and investors are seeing our strategy working on the ground level. What we have also done to ensure fillip to the growth in the direct channel is that we have created two different sales organisations — one focusing on strategic clients and mining more business from them and the other hunting for new clients.
Do you feel competition pressure intensifying and hitting margins?
Yes, margin pressure is there but I don’t see competition as a big challenge. The challenge actually is more due to inflation. In India, the wage inflation is around 8-10 per cent. When you have long-term contracts with clients, clients do not pay you for wage inflation, so you will see more pressure on margins because of that as you are not able to change pricing year-on-year.
But, with that said, we have also been working on margins by increasing focus on improving IMS share of revenues, and bringing more fixed price deals. Currently rupee is helping us, but we are hedging, we don’t want our treasury desk to operate as a profit centre. At any time, we are 50 per cent hedged. So , we don’t either gain or lose much from currency moves.