Q1 was a blowout start to FY18 from a TCV perspective: Mphasis CEO

What are you doing right you think that is resulting in market-beating growth?

There are a few things we are doing right. First, we have a deep understanding of our customers. So when we say focused on BFSI, we have a strong understanding of the sub-domains. We built capability in areas now known as digital. We are building solutions in areas what we believe our customers will have no choice but to invest. We’ve created a strong set of reference clients.

What about the other engines of growth?

Our second engine of growth is within the Blackstone portfolio. We have a strong reference with the 80 odd companies within its portfolio. They are growth companies and we have a systematic program in place to see where the opportunity is. The third is to position ourselves as a partner for the HP channel. HP is no longer one relationship as now there are four distinct entities we are working with. The largest is DXC, which is where a lot of our HP Enterprise Services relationships sit. Taking a programmatic approach to these relationships, doing a cloud partnership and helping them win in the market for transformation deals. This quarter we had 12 new customers and we are still investing in Europe as the transformation opportunity in Europe is in its infancy compared to USA.

Deal pipeline was very strong in Q1 with TCV (total contract value) at $183 mn. In contrast your full year TCV stood at $330 mn in FY17. What has driven this growth? 

Every quarter will hopefully be a good quarter but I think this (Q1) was a blowout start to FY18 from a TCV perspective. This pipeline is only of the direct channel and not include HP. The pipeline continues to be strong. If we can move the direct channel pipeline from high double digit to healthy three digits it will be healthy for us. I don’t know if every quarter will be a blowout, but Q1 is a strong for us. Well begun half done but only half done.

Have the issues with the HP channel been resolved?

I think there were two seminal things that changed in the last 12 months. First was the ownership change. From what used to be owner-customer relationship is now a pure third-party client-provider relationship. We have transformed this relationship at every level. So when ownership changed there was a five year renewal of our deal, which committed a minimum revenue for five years and three extensions after that. The minimum revenue guaranteed was $990 mn. So over the last two quarters of FY17 we saw stability in revenues and stopped decline. This foundation has helped us bounce back. Because we are taking a competitive market driven approach to this relationship, we believe this will be a growth year.

What is happening as far as your clients and new deals concerned and what is happening to deals?

Every deal has an element of transformation. And if doesn’t then we are aggressively proposing it. Transformation means many things. Transformation could mean consumer-facing tech so we can help clients bring better quality service to their end consumers. Even within transformation, there is the ability to apply to service transformation. We won an ISG Paragon Award for a very staid infra management deal we were able to wrap it with a predictive analytics solution. The intention was to predict a failure before it happens so that we could eliminate 50% of the tickets. A ticket happens when something goes down. If the system doesn’t go down, then you don’t need to fix it. This means that you don’t need to spend the effort in fixing it. This is a good way to apply new age technology to transform. Third is automation (RPA) to any business process. Finally, driving a point of view – even if it is proactively - to help client start a digital transformation journey which begins with the consumer and ends with giving a high-quality personalized service across multiple channels.

What about your legacy business?

By virtue of our historical positioning, we are still very custom app-centric and less package implementation centric. Package implementation is where the biggest slowdown and squeeze in spending is. For custom apps, the roadmap is can I upgrade those apps to support my digital channels. And that is a good place to be in. The dynamic of run-cost Vs transformation budget will apply. But you have an option of building a bridge and that is what we are doing.

Transformational work accounts for what percentage of your revenues?

If you look at our trajectory, transformational deals in this quarter were the highest. If in the next 12-24 months, more than 50% of the work you are not doing is not touching transformation then you will have a little more pressure on you. The pendulum is shifting sharply and at this point more than 35% of our revenues nextgen, which is highest in the industry.

The smaller players are responding to this transformational challenge better than the larger players. What is the reason for that?

We like to say we are focused and building capabilities on that. We are not everything to everybody. Focus can come from industry verticals or geographies or technologies that you focus on. Just the fact that you are focused and can make the pivot faster because you are nimble. We have 87 customers, which is a fraction of what the other large players have.

What is happening to clients and what are they asking for?

Let me address the issue of Indian IT. IT is the only sector that is truly global. The challenges are just the same in any geography. What clients are trying to get ahead of is the fact that every business is a digital business. The CEOs and boards started realizing this over two years ago. The issue is simple. How can I embrance all consumer-facing tech and give the same experience the end consumer is getting from Uber and Amazon as they are defining consumer business. Second, how can I future-proof my business. Consumer facing businesses have gotten unbundled whether it is retail or payments. That is a question every client of ours is asking. For many years, entire action was concentrated on what my core system could deliver. That pendulum is swinging away from what my core system can support to what my consumer is expecting. We are helping companies deliver the same experience while keeping the core or using the same core.

How will the core system get transformed and how will that impact Indian IT as a large part of their business is around that?

The way we deal with the core is changing because not only are we not expected to keep the lights on and undertake large development projects, we are now expected to deliver experience with the same core. So what we are trying to do is to extract data from the core build some analytic layers and use this to feed consumer applications. There is a lot of effort needed to deliver the experience to the consumer even if the core is shrinking. You can say that the number of times I reach into the mainframe will reduce but the number of functionalities I can support will increase because we are recommending to pivot away from the core being a monolithic system to a micro-services driven platform. You want the core to be the system of record but you want the intelligence and engagement happens outside.

Are transformational deals small in size?
The biggest myth is that digital deals are small. If “every business is a digital business” then how can you not spend to bring that experience to your end consumer. I don’t know of any bank that is cutting its spends but I do know banks are cutting spend on keeping the lights on. The concept of doing a big bang project in waterfall concept is gone. Now how quickly can a company get the product in the market.

What about margins?
In the medium to long term you can get profitable growth. It all depends on what your business is and how you price is along with mix of contracts. Some of it is scale but it is also about specialization. Every company has to chart its own strategy. We want to capture marketshare and growth. We have given mid-teens guidance. We are at the lower end of the guidance in Q1, but I am not worried about it.