Revenue from Blackstone channels can double in 3 years: Mphasis CEO

In Q&A, Nitin Rakesh dwells on business prospects, M&A opportunities and what Blackstone now brings to table

PE player Blackstone recently upped its stake in Bengaluru-based IT services firm Mphasis. Nitin Rakesh, CEO, Mphasis is confident that with Blackstone backing the company, it will be able to increase revenue manifold from the Blackstone portfolio. After strong growth in FY21, Rakesh is sure that FY22 the company will see industry leading numbers. In an interview with Shivani Shinde, he talks about business prospects, M&A opportunities and what Blackstone now brings to table. Edited excerpts:

Q4 numbers in terms of TCVs signed, as well as for FY21 as a whole seem strong. How do you see FY22 growth panning out?

I think the Q4 numbers were very good, especially the TCV wins we have had. We are among the handful of companies that did not see a single quarter of negative growth on a year-on-year basis, which is extremely important as it displays the level of resilience in revenue. I think the important thing is the consistency with which we have shown growth and never really dipped on a YoY basis.

We have had top-quartile growth for the year. Our direct business grew 17 per cent-plus in the year and is now 86 per cent of our revenue. Of course, some of the growth was diluted by the decline in DXC business. But for every quarter, we have sold more than $200 million in net new TCVs. And more importantly, we signed some of the biggest deals in the history of the company in the last financial year. And we have already beaten the record in the current financial year in just six weeks.

For the financial year our total TCV was $1.1 billion a growth of 51 per cent YoY for the direct business. This also means we have seen solid conversion from TCV to revenue. If you look at growth drivers, it's very broad-based.

We have been able to grow our top 20 accounts, add new logos, and managed to grow our Europe business. The growth came from multiple verticals, of course BFSI led it. And every segment barring one actually grew very heavily. As we get into FY22, we see acceleration in direct growth business. We see that driving growth from us. All this makes me confident to say FY22 we will have industry leading growth numbers.

The DXC business has continued to decline. Is that a concern?

It has been a little over eight quarters now, and we had said that we are, prioritizing growth in the direct channel. We have a tremendous opportunity to really choose where we want to be, we would like to grow and divert our sales dollars, given the profitability profile of the direct businesses is much higher suited to where we would like it to be. We have decided  to use the opportunity to grow the direct business, and effectively, strategically, you know, diversify away from one single client dependence. So today DXC  is about 12 per cent of our revenue.

From a long term perspective the right thing to do is to reduce the high reliance on one large single client. But at the same time, you know, we do value that relationship, and will continue to be a strategic partner. We already have visibility into the relationship. But definitely, the share of DXC in global revenue will continue to decline. And hopefully, it will settle somewhere in the mid to high single digits for us.

How is Mphasis gearing up its cloud portfolio going ahead and how has it grown so far?

We have seen that 60 per cent of our deal wins have cloud components. And 40 per cent of our TCV pipeline consists of cloud deals. We have identified significant investment areas between channel sales, solution sales, and domain expertise. We will continue to augment our relationships with players like AWS, Azure Google and others.

What will the focus area for investments be going ahead?

Other than cloud and adding capabilities in digital, we are also expanding into Europe. This quarter growth largely came from the UK, but we are expanding into Continental Europe and Canada. We have also added to our supply centres. Of course, India is a very key and strategic part of our supply chain and talent pool, and will continue to be by far the largest area. But we’ve added to our footprint in areas like Taiwan, where we have over 1,000 people today. And that’s just a regional hub that we have used for some for high-tech clients because of the talent pool available. We have expanded in Latin America, both in Mexico and Costa Rica all in the last 12 months. We will continue to expand in Latin America.

Blackstone has upped its stake in Mphasis. What does it mean for you?

Firstly, I think continuity in every form is important. This (deal) gives us the ability to have continuity in strategy, in execution, in management, and continuity at the board level. So I think from that standpoint, it is definitely very heartening that we have seen Blackstone’s recommitment from a  new fund. Obviously, it also means that we will continue to be very much central to the synergy thesis that they underwrote the first time and have also underwritten in the second time, we have very strong support from the entire ecosystem at Blackstone, and I think I have said this before, and I’ll say it again, we are right now at mid single digit contribution from the Blackstone channel, I expect that can double in three years, but it will double in a growing share of business. So in a way, it will have to really grow fast for it to actually be a healthy portion of our overall revenues. And I think we have that level of visibility, especially if we also add on the doors that will open with our three new shareholders in addition to Blackstone. So I think it’s great to see continuity, we are seeing a strong recommitment from the top of the house. But in the end, as you know, we will sell it to those companies ourselves.

Having PEs on board means that they will exit one day. Does that bother you?

Not at all. I think Blackstone will complete five years with Mphasis this September, so it's already been five years. This new fund has a 10-year shelf life, so they can technically stay on for another 10 years. Now, obviously, it’s their choice. We already are a public company, so it doesn’t have to be one single transaction. We have also looked at other potential routes to bring in new shareholders. We have already brought in three new shareholders with sovereigns, nothing stops from, from looking at other viable, liquidity options, besides a single sponsor to maximise. So I think it’s that all the options are ours, but at this time, we are all thinking of how to accelerate growth.