Informist, Monday, Jan 30, 2023

By Reshab Shaw

MUMBAI - Mphasis Ltd expects weakness in the US mortgage business to impact its revenue by $4 mln-$8 mln on a quarterly basis. The mid-tier information technology company said even transaction volumes in the home equities segment, which accounted 6.8% of the US mortgage business in the December quarter, have come down. US mortgage business accounts for 8.8% of total revenue.

Mortgage rates in the US rose to an unprecedented level of 6.42% at the end of 2022 from around 3% in 2021 due to the Federal Reserve's aggressive measures to check inflation.

"Since this (mortgage) was a reasonable portion of our portfolio, (it) means Mphasis' revenues got impacted and we kind of gave that as a declaration," Chief Financial Officer Manish Dugar told Informist. He said though the mortgage business has been a dampener, other verticals look reasonably good.

Weakness could be seen in the company's performance as both topline and bottomline for the December quarter fell on the quarter and missed Street expectations. The decline in revenue due to the mortgage business also hit margins adversely, which remained flat at 15.3%.

Mphasis blamed the modest Oct-Dec performance on slowdown in the mortgage business and adverse global macroeconomic factors. To make sure that its business becomes more resilient and less cyclical, the company has been ramping up other verticals as a natural hedge. 

Accordingly, the mortgage business is now a combination of three types of services: one which sees increased volume with reduced interest rates and other where the volumes increase with increased interest rates. And the third that does not get impacted by interest rates at all such as fraud management services. 

Dugar said the idea is to try and sell services to all the top 10 banks that the company works with and not just one or two banks. "And as we sell it across more and more clients, hopefully, the impact of cyclicality will keep coming down," Dugar said.

In a weak quarter, the only silver lining for the company was deal wins worth $401 mln, which was the second-highest in any quarter. And almost 65% of this came from banking, financial services, and insurance vertical and some portion from the mortgage space as well. Nonetheless, revenue from the banking and financial services segment, which accounts for around half of the company's topline, fell around 1% to 18.97 bln rupees in Oct-Dec.

This is clearly visible from the management's observation that conversion of deals to revenue has become challenging when compared to last year. Notwithstanding the above headwinds, Dugar said there are many tailwinds that will aid the margins going forward. One such operational metric is better utilisation, improving from an all-time low last quarter. The key level went up sequentially to 70% in the December quarter from 68%.

Shares of the company closed 2.1% higher at 2,116.85 rupees on the National Stock Exchange today.  End

Edited by Ashish Shirke

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Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

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Informist, Monday, Jan 30, 2023

By Reshab Shaw

MUMBAI - Mphasis Ltd expects weakness in the US mortgage business to impact its revenue by $4 mln-$8 mln on a quarterly basis. The mid-tier information technology company said even transaction volumes in the home equities segment, which accounted 6.8% of the US mortgage business in the December quarter, have come down. US mortgage business accounts for 8.8% of total revenue.

Mortgage rates in the US rose to an unprecedented level of 6.42% at the end of 2022 from around 3% in 2021 due to the Federal Reserve's aggressive measures to check inflation.

"Since this (mortgage) was a reasonable portion of our portfolio, (it) means Mphasis' revenues got impacted and we kind of gave that as a declaration," Chief Financial Officer Manish Dugar told Informist. He said though the mortgage business has been a dampener, other verticals look reasonably good.

Weakness could be seen in the company's performance as both topline and bottomline for the December quarter fell on the quarter and missed Street expectations. The decline in revenue due to the mortgage business also hit margins adversely, which remained flat at 15.3%.

Mphasis blamed the modest Oct-Dec performance on slowdown in the mortgage business and adverse global macroeconomic factors. To make sure that its business becomes more resilient and less cyclical, the company has been ramping up other verticals as a natural hedge. 

Accordingly, the mortgage business is now a combination of three types of services: one which sees increased volume with reduced interest rates and other where the volumes increase with increased interest rates. And the third that does not get impacted by interest rates at all such as fraud management services. 

Dugar said the idea is to try and sell services to all the top 10 banks that the company works with and not just one or two banks. "And as we sell it across more and more clients, hopefully, the impact of cyclicality will keep coming down," Dugar said.

In a weak quarter, the only silver lining for the company was deal wins worth $401 mln, which was the second-highest in any quarter. And almost 65% of this came from banking, financial services, and insurance vertical and some portion from the mortgage space as well. Nonetheless, revenue from the banking and financial services segment, which accounts for around half of the company's topline, fell around 1% to 18.97 bln rupees in Oct-Dec.

This is clearly visible from the management's observation that conversion of deals to revenue has become challenging when compared to last year. Notwithstanding the above headwinds, Dugar said there are many tailwinds that will aid the margins going forward. One such operational metric is better utilisation, improving from an all-time low last quarter. The key level went up sequentially to 70% in the December quarter from 68%.

Shares of the company closed 2.1% higher at 2,116.85 rupees on the National Stock Exchange today.  End

Edited by Ashish Shirke

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2023. All rights reserved.