MphasiS is on damage-control mode after being accused by analysts recently of diluting corporate governance standards and concealing key data from investors.

To address the concerns raised by the investor community, the Bangalore-based IT solutions company will make further disclosures pertaining to its recently unveiled fourth quarter results by this Friday, sources said.

“We are cognisant of the concerns of analysts and are actively working towards providing clarifications and more data wherever required,” a spokesperson for MphasiS said.

Responding to the feedback from the investor community, the Board is evaluating ways in which it could disclose billing rates pertaining to each vertical according to the new structure it has in place, sources said.

The company is also expected to give a break-up of the performance of its applications, back office and IT outsourcing business. This will help analysts compare its fourth quarter numbers with previous sequential quarters.

Last week, MphasiS reported a 12.33 per cent fall in net profit for the quarter ended December 31, 2010, to Rs 209.11 crore, from Rs 238.52 crore in the same quarter a year ago. Revenues were down by 16.19 per cent to Rs 832.91 crore (Rs 993.87 crore). This came as a surprise as the company was on a growth trajectory for the last few quarters.

The decline in revenues was largely due to pricing discounts to its largest shareholder and client, HP, which accounts for 69 per cent of MphasiS' revenues.

HP's role in the episode has come in for criticism with analysts drawing a parallel to what happened with Digital Globalsoft (then an HP-owned entity) in 2003. Digital Globalsoft went through a similar phase of massive price cuts from HP before it ended up buying out the minority shareholders of the company.

As part of it's' ‘transformation', MphasiS had abandoned the policy of reporting revenues by horizontal segments (applications, infrastructure outsourcing and BPO) in favour of reporting by verticals. It has also refrained from giving out details like revenues by geographies and billing rates.

Another reason for the large drop in revenues was that the preceding quarter included a one-off gain of Rs 40.5 crore. Interestingly, MphasiS did not disclose it separately then and had clubbed it under income from operations thereby stoking corporate governance concerns.

Analysts said there is very little the company can do to repair the damage on that front.

“…questions will linger on perhaps for a long time. Why did MphasiS not disclose the one-off revenues and provision reversals through fiscal 2010? Where does the buck stop for holding back key data from investors?,” CLSA analysts said in a research report dated February 24.

Mr Pralay Das, IT analyst with Elara Capital, suggests that MphasiS discontinue its new policy of giving details of its contract staff as part of the reported headcount.

“If this is to be a norm, the company should also give out an integrated headcount number (contract and permanent staff) for the previous few quarters so that comparability can be established.”

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