Shares of HP-owned MphasiS plummeted 29 per cent to register its new 52-week low on the bourses on Friday, after disappointing quarterly performance caused brokerage firms to downgrade the company's stock and raise concerns related to corporate governance.

The Bangalore-based company's shares hit an intra-day low of Rs 443 a piece, before settling at Rs 448.4, 28.43 per cent lower than Thursday's close on the Bombay Stock Exchange.

This is arguably the biggest drop in the company's stock since its debut on the bourses in the 90s.

MphasiS on Thursday reported a 12.33 per cent fall in net profit for the quarter ended December 31 to Rs 209.11 crore, against 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)

The decline in revenues during the quarter was chiefly because of pricing discounts given out to HP, which accounts for 69 per cent of Mphasis revenues.

In sharp contrast, MphasiS' larger peers Tata Consultancy Services, Infosys, Wipro and HCL Technologies, have grown between eight and 35 per cent (on net profits) in the same review period.

MphasiS itself was on a steady growth path for the last few quarters.

The company had not given indications of any challenges on its growth front in its recent analysts meet, said IDFC Institutional Equities said in a research report. On the contrary, “it spoke about 2,400 open positions in Applications/ IT outsourcing as of Oct 2010 end. We await further details from (the) management…,” said the report.

Parallel

Some analysts are critical of HP's role and have drawn 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 HP ended up buying out the minority shareholders of the company.

“We see a similar pattern repeating with Mphasis. However, in our view, the latest episode is one too many for HP's credibility. We also remain intrigued by Mphasis' decision to announce a stock plan for employees ahead of such poor results. Clearly, HP has steamrolled its own employees' interest as well and that will likely be a big hurdle in attracting talent in the future,” CLSA analysts Mr Nimish Joshi, Mr Bhavtosh Vajpayee, and Ms Arati Mishra, said.

Moreover, the company has changed its quarterly reporting pattern. It has stopped disclosing pricing details and has refrained from giving out detailed disclosures of segmental revenue and profitability. While MphasiS has attributed this to its strategy of laying emphasis on businesses along verticals rather than as individual practices, industry watchers are not convinced.

“We believe inconsistency in reporting patterns warrants a de-rating,” Mr Shashi Bhushan, analyst with Prabhudas Lilladher Securities said.

MphasiS did not respond to a questionnaire sent by Business Line on the same subject.

>adith@thehindu.co.in

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