Informist, Thursday, Oct 28, 2021
By Sai Ishwarbharath
CHENNAI - Mphasis Ltd's direct business, which contributes 94% to the company's overall revenue, is expected to clock industry-leading revenue growth for the ongoing financial year ending March.
The direct business consists of "new-gen" areas such as data sciences, cybersecurity, DevOps and user experience. These areas account for 80% of $747 mln deals bagged this fiscal.
"We have a strong order book and based on current deal pipeline's visibility, we feel confident that the direct business should be able to deliver an industry-leading growth," said Manish Dugar, chief financial officer of Mphasis.
"Two quarters have already gone by and direct business growth has been about 10 percentage points on a quarter-on-quarter basis for both the quarters and clocked year-on-year growth of 30%," he said in an interview to Informist.
The Bengaluru-based information technology company is also in a partnership with DXC-HP Enterprise, whose contribution to revenue has been consistently falling and has now become 6% of total revenue as of September-end. Its contribution has halved over the last year.
After private equity major Blackstone acquired a majority stake in Mphasis from HP in 2017, HP and Blackstone entered into a five-year master services agreement, with three additional automatic renewals of two years each. Under this agreement, HP committed a minimum revenue amount of $990 mln over the next five years.
Here are the edited excerpts from an interview with Dugar:
Q. What gives you the confidence for industry-leading growth in direct business for 2021-22 (Apr-Mar)?
A. Growth in direct business has been near 10 percentage points on a quarter-on-quarter basis for both Apr-Jun and Jul-Sep and clocked year-on-year growth of 30%. We also have a strong order book and based on the deal pipeline's visibility, we feel confident that the direct business should be able to deliver industry-leading growth.
Q. Your average large deal size has grown over the year. What is the reason behind the surge?
A. We built muscle to win large deals, execute them and create references for more such deals. Then, the customer gets confidence and entrusts us with a larger opportunity. This combination has led to continuous improvement in both the size of the large deals and the number of deals.
Q. Will digital and cloud-based deals taper down as the world returns to normalcy?
A. We were working on 'new-gen' transformation deals in the pre-pandemic era as well. It is just that pandemic has accelerated investment in the 'new-gen' area and budget re-prioritisation from 'run' the business to 'change' the business.
We build these deals proactively and not in response to request for proposal from clients. These are all 2-3 year programmes and will not taper off after a few quarters. It is almost like consultative selling.
Q. You have retained the margin guidance. What will be the levers to achieve it as wage hikes and return of travel costs are potential headwinds?
A. As long as we are in the margin band of 15.5-17%, we would like to invest in growth every dollar we have in excess. We don't think all will come back. If some costs are back, we have the ability to moderate some short-term investments. But that will be only if price increases or margin benefits from dropping DXC revenues are not enough.
Q. What is the idea behind acquiring design consultancy Blink?
A. User experience is one of the key critical technology tribes that we have invested in before and we now wanted to double down on it. In our archetype of front-end to back-end, think of this as a first part of the front-end.
It also comes with a few other benefits such as top US-based tech giants as customers. It is also revenue accretive and a gross margin accretive business.
Blink does currently about $35 mln annual revenue. But once we use their capability across our client organisations, we can unlock a significant opportunity. Typically, when you think of a large customer, where we are doing an end-to-end project, this capability may form the initial 10% of that deal but that 10% capability would have been instrumental in winning the deal in the first place.
Q. How do you plan to navigate your growing attrition rates?
A. DXC business has been declining over a period of time. One good thing is that we have been able to do is to make sure that whatever headcount were getting released from DXC, we redeployed in our direct business. The natural outcome of that is we don't have to hire as many people as we would have hired otherwise.
End
US$1 = 74.82 rupees
Edited by Shirsha Thakur
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