Not so Mphatic

Organic growth continues to elude MphasiS

MphasiS' revenue growth in the September quarter was expected to be strong, thanks to the full impact of the Kshema acquisition. The 10 per cent sequential growth in revenues, therefore, wasn't surprising.

In fact, the management pointed out that the growth in the organic software business was not more than 2-3 per cent, which means overall growth could have been much better.

Growth in the organic software business continues to be a problem for the company - the growth rates in the previous three quarters were in the 2-4 per cent range.

Interestingly, in the September quarter, the employee base came down by around 2 per cent. True, the decrease is negligible, but the point is that most other software companies are still hiring aggressively. Even in the BPO business, revenue growth fell to 9.5 per cent compared to 15 per cent in the June quarter.

Profitability improved as the result of a higher proportion of offshore work and fewer employees. Operating profit growth, therefore, was rather impressive at 26.44 per cent.

However, that was completely wiped out thanks to a forex loss of Rs 1.65 crore last quarter. In the June quarter, there was a forex gain of Rs 7.5 crore instead. As a result, PBT fell 10.9 per cent.

Last quarter's forex gains were simply because of a change in accounting policy. MphasiS hedges receivables for a year ahead, and if the dollar remains at current levels, there could be forex losses going ahead as well.

Another concern is that the BPO business needs to grow at 14 per cent plus in the next two quarters to achieve the 65 per cent y-o-y target set for FY05.

With growth in the BPO business having fallen to 9.5 per cent last quarter, and the fear of further forex losses, analysts may revise profit targets for FY05 downward. It's no wonder the MphasiS stock ended 7.7 per cent lower on Monday.

Gujarat NRE Coke

The Gujarat NRE Coke Limited (GNCL) stock has risen around 59 per cent over the last 2 months, compared to a 17 per cent rise in NSE's CNX 200 MidCap Index. What's the reason for this massive outperformance?

Realisations from met coke have jumped around 60 per cent year-on-year. Also, the company has kept costs down by entering into long term supply contracts for coking coal from leading suppliers in Australia and South Africa.

That helped keep the cost of raw materials more or less steady in Q1, despite international coking coal prices rising approximately 30 per cent y-o-y.

GNCL had also entered into long term shipping contracts at $20-$25 a tonne, thus insulating itself from the surge in shipping freight rates. As a result, the company reported a six- fold growth in net profit in the June quarter.

But the price of met coke has dropped sharply over the last few months. They are currently approximately $250- $255 a tonne, down from the $370-levels in June.

Nevertheless, GNCL's Q2 results should continue to show the favourable impact of a lower base, since year ago prices of met coke were only around $150 - $155 a tonne.

Allahabad Bank proves doomsayers wrong

If the Allahabad Bank results are anything to go by, the worries about public sector banks seem to have been vastly overblown. The bank's second quarter results, the first to be declared among PSU banks, shows that net profits have more than doubled year-on-year.

However, since banks were expected to suffer greatly from the rise in bond yields during the last quarter, a comparison of Q2 with Q1 may highlight whether there has indeed been a substantial difference in the operating environment.

The first difference, of course, is the much lower "other income". But that shortfall is almost made up by higher net interest income.

The upshot: the bank's operating profit in Q2 is lower by only about Rs 22 crore than its profit in Q1. The rise in interest income was helped by a growth of 11.9 per cent in advances during Q2.

Lower provisions and contingencies helped the bank post a higher net profit in Q2 than in Q1. Nor was there any slippage in NPA ratios "" net NPAs fell from 1.69 per cent of advances as at end-June to 1.65 per cent as at end-September.

The lower provisions in Q2 led to the provision coverage declining a bit, from 79.61 per cent as at end-June to 76.58 per cent as at end-September. But a big positive for the bank is that gross NPAs are now lower than in June.

With contributions from Mobis Philipose and Amriteshwar Mathur