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Mid-size information technology (IT) services company Mphasis might have been in the news in recent months due to the buzz about promoter Hewlett-Packard (HP) selling its 61 per cent stake in the company, but chief executive officer Ganesh Ayyar tells Itika Sharma Punit that it is business as usual for him and his team. Even as the company posted a muted performance for April-June 2014 (Q1FY2015), Ayyar says the order pipeline was robust, with average deal sizes rising. Edited excerpts:
What dragged down Mphasis' performance in the April-June quarter?
This quarter provided some kind of contradictions for us because even as the direct, organic business grew well, Digital Risk (which the company had acquired in February 2011) took a hit. Digital Risk does very specialised work around US residential mortgage and the number of transactions in that space have come down by 40-50 per cent. That had a direct impact on Digital Risk. The good news is that we have started working on an antidote for Digital Risk’s problems 4-5 months back. We were focused on a certain size of mortgage players but now we are going to another level to see if we can increase our market presence. However, this recovery takes time and I believe that in the medium-term, which is around nine months, we would be impacted due to the slump in Digital Risk. In the direct organic business, our pipeline is strong, and our average deal size is moving up.
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What is happening on the business you get from your parent, HP?
We have not managed to arrest the decline in the last three years, and there has been a decline in that business in this quarter as well. ‘Tell us what you want to do and we will do it’ is the easiest way to go, but we need to be valuable to our customers and shareholders too. We are attempting different commercial models and we have not succeeded. We have not been able to bring the value that they are seeking, hence the money is going somewhere else. We have not cracked the code and I do not believe that we are closer to cracking the code immediately.
Despite being your parent, why is HP not giving you the business?
Look, there is a silver lining in your question. It demonstrates strong corporate governance on the part of us both. HP does not mix its share-holding with business, and we don't mix their share-holding with the business that they give. HP treats us like any other vendor.
Your operating margins have been falling. What's the outlook on that front?
We are not taking a hit on margins to get contracts, because that is more like a short-term strategy. However, we see margin pressure because of Digital Risk. We used to operate in a 15-18 per cent band, but I think in the mid-term, we will operate in the 13-15 per cent one. Wage hike will happen in the next quarter and there will be some impact on margin, but we have plans to negate that impact.
How have you been dealing with rumours about top-level exits from Mphasis?
Look at my track record. In the last 25 years, I have worked for only two companies. I don't jump ship that easily and I can tell you without blinking an eye that I did not have any conversations about senior-level exits at any time.
How do you manage employees’ sentiment amid such rumours?
We have had 80 media reports around stake sale rumour in the last 24 months, but they were all wrong. Employees are doing what they are doing. Attrition is not worrisome. The challenge is that while I can only prove things that exist, I cannot prove non-existent things. I have had candid conversations with my employees, and the tenured employees have got used to these rumours. In deed, it was a concern and employees asked such questions, and I told them just what I have been saying to the media. Some clients also ask questions, because the media writes about it. They ask if this is happening and what it means to them, but slowly customers are also getting used to it.
