We expect billing rates to remain stable in fourth quarter

Written by Rachana Khanzode | Updated: Aug 28 2010, 08:16am hrs
Bangalore-based IT and BPO services provider, MphasiS reported a net profit of Rs 271 crore during the third quarter FY10, up 18% from last year and Ebitda margins grew 24.7%. The company wants to maintain ebitda margins for the year at around 24-25%. Ganesh Ayyar, CEO tells FEs Rachana Khanzode that the firm would add about 2,700 employees in the immediate quarter. Excerpts:

Ebitda margins for the quarter dipped 110 basis points quarter-on-quarter to 24.7%. Do you see these at current levels in the coming quarters

We have a view to have the ebitda margins around 24-25% for the year. The ebitda margins were impacted due to rate-reduction at HP clients. Gross margins in application services shrink 380 bps due to price cuts. However, in ITO and BPO services, gross margins expanded 470 basis points and 180 basis points respectively, thus reducing the overall impact. During the year, the firm also gave re-compensation payout and fixed salary hikes that increased the manpower costs 160 bps, impacting margins. In the fourth quarter, we expect billing rates to remain stable.

Your offshore-onsite mix has changed drastically from on site at 25% in Q3FY09 to 33% in Q3FY10. Is there a change in strategy

No, this not based on any strategic move. It is largely on the back of the new acquisition of Fortify Infrastructure Services in February. The acquisition added a 200-odd people.

The shift is also based on the change in quarterly cycles.

MphasiS saw good volume growth during the quarter. Are these sustainable

During the quarter, we saw a volume growth of about 8% quarter-on-quarter. Of this, inorganic volume growth was 2%, while the rest 5.8% was organic growth. Over the last three quarters we have been able to maintain our top line this quarter at 15%, the second quarter at 19% and the first quarter around 21%. We are expecting an average revenue for the year to be around 18%.

What are your hiring plans for the coming quarter

The utilisation rate excluding the trainees for application services and IT services during the quarter was at 75% and 79%. For the BPO it was 71%. We immediately need about 2,000 people in application services and about 700 for IT services.

There is a 200 basis points decline in revenues coming from the European region. Do you see concerns in this geography

We do not see any major impact on the business coming from Europe. The decline is largely on the back of rate reduction in HP clients. Since dealing with HP is no different from any other client, it has shown up in the revenues from Europe. Also, there was a network outage with one of the telecom client due to which we couldnt serve the client.