The . 5,000-crore global IT services and BPO company reported a 8.5% sequential drop in dollar-denominated revenue in the January 2011 quarter, the first quarter of its fiscal. It was far below the analysts' anticipation of 3-4% increase.
The business from HP, its parent, was sluggish against the expectation of a stable trend. Also, the time it takes to collect outstanding revenue spiked to 94 days from 77 days a year ago.
Though the performance of MphasiS was disappointing, it was not sudden and shocking in the stricter sense as felt by many on the Street. The company had shown signs of fatigue in the previous two quarters when its growth lagged behind bigger peers. Though the net profit growth in the October 2010 quarter was strong, this column had highlighted the underlying weakness in the volume growth.
Most analysts, on the contrary, expected a rather aggressive revenue growth rate of 20-23% for the fiscal ending October 2011. After the latest results, the growth estimate is scaled down to a meagre 4-5%.
For MphasiS, the two major concerns are stagnation in its HP driven sales and a lack of momentum in revenue from non-HP channels. The company has not shown any traction in its business verticals for the past three quarters.
Further, MphasiS has taken rate cuts in its HP-driven business in the past, which directly impacts its profitability since it contributes over two-third to the revenue. The company's recent organic and inorganic steps to reduce its dependence on HP are yet to show results.
Most brokerages have revised the stock's one-year target price downwards between . 480 and . 600 from an earlier estimate of above . 700. On Friday, it fell way below its target price to . 448.4. This may attract fresh investment in the short-term but the long-term performance will hinge upon how quickly it resumes the growth path.
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