Ganesh Ayyar, CEO of the $1-billion MphasiS, India’s sixth largest information technology services company, is both happy and sad. Happy because of the good results in the quarter ended July (the company’s financial year is November to October), but sad that revenue from its parent Hewlett-Packard has been declining consistently – from a peak of 71 per cent to 41 per cent – in the last 11 quarters.

Consolidated revenue in June quarter was Rs 1,540 crore, up by 9.6 per cent quarter-on-quarter (QoQ) and with net profit at Rs 193 crore, up 9.1 per cent QoQ.

“From the results perspective, I would like it to be a turning point. But, I am hesitating.

“If we can demonstrate two more quarters of good results, then certainly I will call it as a turning point,” Ayyar said.

In an interview with Business Line, Ayyar discussed various issues, including HP.

Excerpts:

How do you view the July results?

I want to view it in the context of our journey, which started in 2011 when collectively the board chose a different path chosen by external and internal stimulus. External factor was the fact that offshoring value proposition, which was built around cost arbitrage, will not sell anymore but will remain relevant. We had to find an alternative to complement cost arbitrage. The second stimulus was that HP’s business with us became such a huge proposition and our direct business [non-HP business] had not grown for nearly four years. The enterprise risk was that if you are dependent on the top customer-cum-partner for 71 per cent of your business, if they sneeze we will get pneumonia. We had to solve that issue.

How did you do that?

We decided to do lesser things but much better than what we were doing. We were spreading our investment across eight different industry verticals. We made it two and picked up banking and capital market, and insurance. Our sales force was spread across 16 different countries but brought down to eight for greater scale. The industry was dividing the world as Americas, Europe and Asia. We divided it as matured geography and emerging geography based on the buying behaviour of customers than geographic proximity.

Direct business seems to be growing for you?

Yes, it is growing at a decent pace. Profitability is improving and we are delivering growth, which was an issue in the last 10-12 quarters because every dollar of our direct business growth was taken away by our decline in HP business. So, to grow the company at 9.6 per cent sequentially is a source of confidence, but it should not be a source of over-confidence because this is just one dot.

The second dot will make it a line and third dot will make it a trend.

We have to make sure that the third quarter results are not seen as an exception but as a beginning of a new MphasiS era.

Is the July quarter a turning point for you?

From the results’ perspective, I would like it to be a turning point. But, I am hesitating to call it as a turning point. If we can demonstrate two more quarters of good results then certainly we can call it a turning point. At this time, it is too premature.

Is the growth sustainable?

That is what we have to do. We are working hard. It is like in cricket. You had a good opening stand but one wicket down.

We now have a choice. Should we squander away the opening stand or build on it. Banks, insurance, manufacturing and telecom companies are cutting down their costs. I do not complain when they do this.

We need to find ways and means to get business.

How?

Cost arbitrage is important but that alone will not make us succeed. We need to have deeper knowledge and expertise in emerging areas like data, mobility and analytics. We need to have business models that customers will be comfortable to get in with you. Then we can have traditional discretionary services and application management.

How tough is it to get new clients?

In any given year, if we are aiming only on new logos for growth, we are doomed because on an average the new logos contribute 2-5 per cent of revenue. If that is the group we are going to rely on and not on existing clients, we are in deep trouble. Even if we are overwhelming success in new logos, it will give us only 5 per cent growth. If we introduce a new service and cannot convince existing customers to use it, we are doomed. We are putting a lot of focus on existing customers because we believe that if we ignore them, the chances of succeeding with new logos are less.

What are the challenges for you going forward?

Challenge is to deliver growth, retain and improve profitability in the fourth quarter and first quarter of next year. We have a good pipeline and we need to execute it. I am unhappy with the current status of decline in revenue from HP business from as high as 71 per cent to 41 per cent over a period of 11 quarters. This is a huge shift. We need to crack the code.

How?

We will not drop rates because we have a compelling value proposition. The easiest way to get business is drop rates but it is one of the crimes one can commit because once you unrealistically drop rates we will find it difficult to raise it. Every customer believes they should pay less and get more. Every service provider wants more for the same. This healthy tension defines the market. We are not facing any unusual pressure.

How do you deal with HP as a parent and as a customer?

HP does not mix up shareholding with their business. They have completely two different decision-making processes.

Even if we meet in the board, we do not discuss how HP as a partner and a customer is trying to restructure the contract or demand better business or not giving business. This is a problem we need to solve. We do not go to the board if it is another customer, so why should we for HP?

> raja.simhan@thehindu.co.in

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