Bangalore-based mid-cap IT services and solutions firm MphasiS saw its stock fall 4 per cent during intra-day trading as Hewlett-Packard (HP), its parent, yesterday announced that it is writing-off $8.8 billion due to a massive accounting scandal at its British software unit Autonomy.
The company’s stock price however recovered and closed at Rs 394.9 per share, down 1 per cent from previous close of Rs 398.9.
HP yesterday announced, as part of its earning call, that it is taken a $8.8 billion ‘charge’ on British software firm Autonomy as some former executives of the acquired company had “wilfully misrepresented” accounts.
The news of HP plunging further into its financial mess had impact on its Indian subsidiary MphasiS, though analyst said that the stock were down more due to knee-jerk reaction from the market. However, many felt that new challenges at HP might push back any plans of MphasiS being delisted on the Indian bourse's or of a buyback of stocks. An email sent to the company to comment on the impact of the write-off on its business, remained unanswered.
“I do not think this news will have any impact on MphasiS because the business that the company gets from HP has nothing to do with Autonomy. What we will have to see is if this will impact any further the business that HP gives to MphasiS. But with new problems cropping at HP at regular intervals it seems MphasiS will not be a focus for it, which might mean the delisting not happening or the buyback of stock being heldup,” said an analyst of a leading brokerage firm on condition of anonymity.
Other than holding a majority stake in MphasiS, HP also contributes significantly to the IT services company's revenue. HP contributes about 55 per cent of revenues to MphasiS. The HP business is divided into two segments--HP channel business and HP as a client. However, the company management has been focusing and has been successful too in growing its direct business (non HP business) consistently. For the quarter ended July 31, 2012 direct business was 45 per cent of the company's revenue up from 33 per cent a year back.
MphasiS in an analyst meet held in October had told analysts that business from HP will be under pressure. “Mphasis' commentary indicated little respite over the near term from the challenges in the HP channel, as the ramp-down pressures may last over the next few quarters. Revenues from HP Channel have declined to Rs 770 crore in 3QFY12 from Rs 920 crore in 4QFY10,” said Ashish Chopra of Motilal Oswal in his report after the meet.
"I do not think this write-off will impact MphasiS in any way because HP had taken a similar write-off last quarter on account of its acquisition of EDS. That had a direct co-relation to MphasiS but the company did not see any major impact. However two consecutive financial blunders at HP may impact the company's credibility in the market. Issues like delisting, buyback at MphasiS might take a back seat," said Pralay Das, analyst with Elara Capital.
The management has stated that it expects parent HP's revenues to be under pressure as HP Enterprise Services (HPES) has lost four of its key accounts. Company expects 5-6 per cent further sequential fall in its HP volumes along-with zero growth in its direct channel revenues for the October 2012 quarter. Analysts expect the direct channel business to grow by 15-20 per cent in FY13, partly offsetting a 15 per cent fall in HP revenues.
Analyst also point out that while an immediate impact is still difficult to predict, the recent write-off might impact the future pricing discussions with MphasiS. “The Masters Services Agreement between MphasiS and HP was renewed very recently and then MphasiS had said that pricing were maintained at market level. But my concern is after six months when they will yet again come for renegotiation they might ask for a price reduction due to the latest write-off,” said Ankita Somani, research analyst, Angel Broking.
