The stock of IT solutions provider MphasiS is up 7 per cent today, on rumours of a possible stake sale by its promoter Hewlett-Packard (HP) which holds 60.49 per cent in the company. But the news of HP wanting an exit has been doing the rounds for quite sometime now.

HP is the largest client for MphasiS, contributing 36 per cent of the company’s total revenues. But the HP channel business has been on a decline, on account of slowing orders by HP customers.

HP channel revenues

In the latest March quarter, MphasiS’ revenue declined 1.2 per cent sequentially with the HP channel revenues declining by a sharper 4.4 per cent. The revenue mix between the company’s direct business and that sourced through HP has changed significantly to 64:36 in the March 2014 quarter from 54:46 in the same period last year .

While MphasiS has been trying to reduce its client concentration by increasing its focus on its direct business (non-HP), the prospects of this business also appear weak. The direct business grew just 0.3 per cent sequentially in the recent March quarter.

MphasiS’ weak performance in direct business as well as concerns on the declining business from HP has been an overhang on the stock. While possible stake sale news has propped up the stock, the outlook for the company will hinge on its capability to ramp up its direct business if HP does sell off its entire stake.