The MphasiS stock fell about 6 per cent intra-day trade on Wednesday on the back of parent company Hewlett-Packard (HP) taking an $8.8-billion write-down which was linked to the Autonomy Corp business. However, the stock recovered to close at Rs 394.90, down one per cent on the BSE.
According to reports, there were “accounting improprieties” in Autonomy Corp before HP acquired it in 2011. On Tuesday, HP accused Autonomy’s former managers of a broad range of financial misrepresentations.
Investor sentiment was hit because MphasiS relies heavily on business from HP. The US computer giant holds over 60 per cent stake in Mphasis. The Nasdaq-listed HP plunged by about 12 per cent on Tuesday following the development.
In a bid to diversify its software portfolio and increase its presence in the high-margin IT market, HP bought Autonomy last year for about $11.1 billion.
According to Investopedia, a write-down typically occurs on a company's financial statement when the carrying value of the asset can no longer be justified as fair value and the likelihood of receiving the cost (book value) is questionable at best.
“MphasiS has actually become a proxy of HP in India. Much of its business comes from HP. The parent company’s problems are structured and long-term so concentrated risk still remains for HP,” said Jagannadham Thunuguntla, Strategist & Head of Research, SMC Global Securities.
A September 2012 report from Emkay Global Financial Services said, “Discussions with MphasiS management indicated that they still continue to see pressure in business from the HP channel despite nearly 38 per cent decline in quarterly revenue run rate from HP.”
Ashish Chopra, research analyst with Motilal Oswal Securities, said, “The worst news has already been communicated by the management of Mphasis. The stock drop was a sentimental issue. However, the direct impact on MphasiS will not be too much.” Motilal Oswal has assigned a ‘sell’ rating to the MphasiS stock.
Reports suggest that the FBI is looking into the HP-Autonomy issue.