In a move that would ensure less reliance on parent company HP, Bangalore-based MphasiS has decided to expand into the mortgage-related software segment.

The company said on Monday that it will acquire US-based Digital Risk, a privately-held company that provides regulatory software solutions for the mortgage industry, for $175 million in an all-cash deal.

The remaining amount will be paid out of the earnings over the next 30 months. This acquisition, analysts say, will ensure that MphasiS, a company that belongs to HP, would rely less on its parent for business and improve performance.

This year, MphasiS has been experiencing growth pressures as HP is battling sluggish performance in its enterprise business which, in turn, contributes over 50 per cent to MphasiS’ revenues.

In the third quarter, management commentary indicated that MphasiS continued to see challenges in getting more business from HP. “Management had indicated that MphasiS will outgrow the dependence on HP, considering that it has been underperforming compared to its peers in terms of revenue growth for the past eight quarters,” said Vimal Gohil, Analyst, Asit C. Mehta Investments Intermediates.

At the end of the third quarter, MphasiS had Rs 2,575 crore of cash on its books and the company was under increasing pressure to grow its business.

MphasiS has been trying to do that and this acquisition will give that strategy a much-needed fillip, according to analysts.

As per analyst estimates, at the end of the third quarter, application maintenance (to which HP contributes in a big way) contributed Rs 464 crore as against transaction processing’s Rs 76 crore in the same period.

Further, banking and capital markets contributed 25.9 per cent in the third quarter of FY12, according to Angel Broking estimates.

(This article was published on December 3, 2012)
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