Mphasis eyes $1 billion in revenues

Mphasis, an HP-EDS owned mid tier services firm plans to achieve around $1 billion in revenues over next few years by growing its business from customers such as AIG, and working more closely with parent for bigger, multi-year outsourcing contracts.

Having reported around Rs 1,105.6 crore in revenues during third quarter ended July 31 this year, Mphasis has been rationalising its costs and working towards building a healthier cash flow.

“We had begun the year with around $10-15 million in cash, however by third quarter, we had cash of almost $100 million,” Ganesh Ayyar, chief executive of Mphasis said in an interview. His company’s first goal is to achieve around $250 million in quarterly revenues, Mr Ayyar added.

One of the first things Mphasis pursued after achieving healthy cash balance was to seek strategic acquisitions such as AIG’s captive back office business AIG Systems Solutions (AIGSS) for gaining more domain expertise in areas of finance and insurance. ”AIG brought expertise in retirement and auto insurance, which we did not have, and helped us become a stronger player in the insurance domain,” he added.

Mphasis derives around 40% of its revenues from the banking and financial services industry (BFSI). The AIGSS acquisition also brought around 800 employees with expertise in insurance business.

However, unlike recent captive transactions such as Citi’s captive unit sale to TCS and Wipro where revenues were ensured, the AIG transaction does not promise any assured revenues for Mphasis.

“There is no exclusivity pact in the contract, we had and have better faith in the customer even without any legal commitment for business,” Mr Ayyar said.

Earlier this year, Mphasis also decided to bring down its operational costs by rationalising bench strength, utilisation rates and real estate.

“We looked at the entire cost management process and had very detailed performance dashboards for everybody-in fact we also requested our entire workforce to save $1 every day,” said Mr Ayyar.

When orders were hard to come by few months ago, many companies such as Mphasis were forced to rationalise their payroll costs and explore many cost saving options. One of the biggest challenges for a software services company is to ensure that new hires and those on bench start contributing to the revenues early.

“We did not cut salaries or undertake any retrenchment,” said Mr Ayyar.

Mphasis shortened the entire cycle of hiring a new recruit to the time the person actually starts contributing to the revenues by as much as 60% in some businesses.

Meanwhile, the company would pursue acquisitions similar to AIGSS) in order to achieve growth. “There are certain areas where we have no choice but to go and buy, but it’s more about the ability to do it than appetite,” he said.

EDS, now an HP company, had acquired 52% stake in Mphasis in June 2006 for nearly $380 million. Mphasis shares closed at Rs 665.75 on BSE on Wednesday.