MphasiS net takes 6.8% hit on costs

The acquisition of Digital Risk and dividend payouts had a negative impact on the bottomline of leading IT services company MphasiS Ltd during the second quarter ended April 30, 2013. The Bangalore-based company’s net profit after tax declined 6.8 per cent year-on-year to Rs 177 crore during its second quarter from a net profit of Rs 189.43 crore a year earlier.

On a sequential basis, net profit of the company for the quarter declined 4.3 per cent over the previous quarter ending January 31, 2012.

Operating margins were hit on account of lower other income as a result of the Digital Risk acquisition. Margins stood at 14.7 per cent, down from 15.5 per cent in the first quarter on account of the integration of lower margin Digital Risk.

MphasiS Chief Executive Officer Ganesh Ayyar pointed out that effective tax rates had been increased to 25.1 per cent due to higher tax rates applicable on Digital Risk profits, increase in tax surcharge in India and expiry of the initial five-year tax holiday in some of the company’s delivery centres located in Special Economic Zones.

The acquisition of Digital Risk LLC for $175 million was completed on February 11, 2013 and continues to show strong growth momentum, Ayyar said, adding, “We have won a large $60 million TCV contract from a BFSI client with potential upside of $40 million based on further volume. This contract is the largest contract ever secured in Digital Risk’s history."

Direct channel revenues (including Digital Risk) in the second quarter increased 37.7 per cent year-on-year and 24.8 per cent sequentially to Rs 775 crore.  EPS for the second quarter stood at Rs 8.4 as against Rs 8.8 a year earlier.

Consolidated revenues for the second quarter were at Rs 1,405 crore, up 5.8 per cent year-on-year and 11.8 per cent sequentially.  The direct channel contribution has now crossed 50 per cent of total revenues, Ayyar said. Direct versus HP business mix is at 54:46 in Q2 as compared to 48:52 in Q1.

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