Digital and global risk & compliance (GRC) segments will be the focus areas for Mphasis over the next couple of years, CEO and Executive Director Ganesh Ayyar told CNBC-TV18.
The company bagged USD 270 million of orders of which two thirds came from GRC and digital, Ayyar said. The digital business alone won USD 20 million of orders, he said.
Mphasis's operating margin for this year will be in the range of 14-16 percent, he said, about the same as last year.
The company’s business from HP has been declining for the last 16 quarters and accounted for 31 percent of total revenues in the March quarter of 2015. Though it has won new deals this year, growth in HP business is expected to be slow in the coming quarters, Aiyyar said.
Another focus point for the company is the Research & Development (R&D) and innovation. The company has launched Mphasis Labs and Corporate start up (CART-UP). Aiyyar said while the labs will have short term initiatives of three to four months, CART-UPs will have start-ups by employees for the clients for a longer period of time.
The company has already launched Hypergraph under the Mphasis Lab on Tuesday and a start-up nine months back, which is awaiting its second round of funding, he added.
Below is the transcript of Ganesh Ayyar’s interview with Reema Tendulkar and Ekta Batra on CNBC-TV18.
Reema: While you did repose your faith in the non-HP or in the direct business. On HP the outlook is still very murky. You have indicated that you do not expect it to rebound; there is not much visibility if we see the performance in the last many quarters. It used to contribute more than 60 percent of your revenues and it has come down to about 30 percent. What is going to happen in HP? Will the promoters continue to stay put? Are you getting any deals at all from HP?
A: We are wining some deals with HP and they are in the focus area as well. On an overall basis, we have been declining almost for 16 quarters. So, I am not going to bet on it saying that it is going to rebound and we are going to get growth back in HP business. Our entire planning assumes decline in HP business and our focus is in growing our direct international business. We have a very strong pipeline and had good wins last year, which makes us confident that we will grow faster than the market.
Ekta: Talking about your non-HP business, you have guided for a growth rate which would be in line with Nascom at 12-14 odd percent. If you are saying that HP is going to continue to be sluggish, what would the entire consolidated entity grow at for this fiscal?
A: We do not give guidance for the entire company, but our direct international business accounts for roughly about 60 percent of our revenue. That is likely to grow faster than the market. HP decline continues. Unfortunately, the decline has been there on HP’s side for the last four years.
Our focus is to double down around direct international, not just row, but grow in terms of quality. We are winning in digital and in governance risk and compliance (GRC). These are areas where customers are spending more. We want to win in areas where more money is flowing.
Traditionally, IT is expected to decline at the rate of four percent over the next three years. That is a significant part of our revenue. The success lies in the fact that if are you going to grow in areas where more money is going to flow, then those are the two areas where we are going to focus and win.
On an overall basis, when you do the Maths, you can arrive at certain numbers, but I will not be able to provide any guidance on that note.
Reema: You spoke about the strong deal wins, which gives you visibility for the coming years. Last year, the company won about USD 270 million on the whole. So far in Q1, what has been the quantum of deal wins and any number you can give us which gives us a sense of what the pipeline looks like?
A: To clarify, USD 270 million are actually new wins and does not include renewals and is entirely in the direct space. The trend of our pipeline and the win rate continues. We believe, we will once again have a good year in 2016. I cannot guide quarter-by-quarter, but our pipeline being strong, it makes us confident about not just growth rate but wins which will result in a very strong backlog as we end the year of 2016.
Ekta: What is going on with the innovation bit? We do understand that you all have a revitalised research lab called Next and there is a lot of emphasis from IT companies within the innovation space. You have spoken about a Chief Innovation Officer as one of the key points that maybe IT companies need to look at and how traditional IT itself, as you mentioned, is declining. Can you tell us what the emphasis is on the research and development or innovation, which the company is looking at this point and what is the total investment and how?
A: We are focusing on innovation on two specific initiatives. One you mentioned is Mphasis Labs called the Next Labs. We just announced the first output from Next Labs two days ago called Hypergraph and is actually a tool which is able to bring the big data analytics across social network and enterprise data and is able to give insights. It has artificial intelligence built in it. It is high science or high technology. Mphasis Lab actually focuses on short bursts. Anything which is going to take more than four months will not be undertaken by Mphasis Labs because in the new world, cycle time becomes extremely important. So, they are focused on coming out with things which are within three to four months time period. They need to undertake the pilot and then it will be up and running. So, first product out 48 hours ago is called Hypergraph.
The second form of innovation initiative we have undertaken is CART-UP, which is corporate supported start-up. We are encouraging our own employees to form a start-up within the context of the company. We will fund it as long as it is within the area of our focus and is going to serve our clients. The first CART-UP got formed about nine months ago and first round of funding has taken place. Second round will happen once they complete a successful pilot. This is in the space of governance risk and compliance. I expect some results by September-October timeframe and if they successfully complete the pilot, then we will go for second round of funding for this start-up.
Reema: As you pointed out even the company is now looking at digital very closely and you have done all these innovations. Currently, what is the contribution of digital to your consolidated revenues? Channel checks suggest that generally for IT companies while there has been a lot of talk about digital deal wins, we haven't seen any large ones. What is your sense?
A: That is not true. There is enough opportunity in the market place. To be very specific, we won more than USD 20 million single contracts where we are focused on working with a client, becoming their COE in the space of digital. We are looking at how do bring intelligence to the products and to the entire frame of managing channels. There are enough deals out there, real money is being invested and we expect this space to grow at a much faster pace and the traditional IT is going to decline. So, this is going to be a hop there.
The question is can you bring real value to your clients; decision-making does not happen in traditional places. You need to have a go to market which is effective. I believe digital will be a huge thing in time to come. When I look at our USD 270 million wins last year roughly about two thirds came from GRC and digital put together. It is not as if it is small and we are not winning. We are going to double down around GRC and digital. We believe it is going to fuel our growth.
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