DXC revenue expected to stabilise at 10-12% for Mphasis
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Synopsis
When private equity firm Blackstone acquired Mphasis from HPE in 2016, there was an agreement that it would provide Mphasis a minimum revenue commitment of $990 million over the next five years.
By Priyanka Sangani, ET Bureau
Midsize IT services firm Mphasis expects revenue from its core DXC account to settle at 10-12% in the medium to long term, as the five-year guaranteed revenue agreement with the company comes to an end this year.
“We are at a point where our direct relationships are starting to be as large in terms of revenue contribution. I think 10-12% is a good range to think about for DXC in the medium to longer term perspective,” said Mphasis CEO Nitin Rakesh.
There were concerns as to whether revenues from DXC would disappear completely once the five year period ends in September. Rakesh, however, said, “We have visibility of revenue beyond September as we have signed deals that will close past this date.”
He said the company had been restructuring its portfolio in the past three quarters to reduce dependence on DXC.
“Mphasis has shifted focus away from DXC business to direct channel business to further de-risk business profile. Quarterly run-rate of DXC reduced to $44 million from $73 million in the fourth quarter of 2020-21,” said Aniket Pande, lead analyst – IT and Telecom, Prabhudas Lilladher. “We believe that DXC may stabilise depending on ramp-up of new deal wins or continue to decline, given that Mphasis is consciously shifting away from growing this business.”
The contribution of DXC to total revenue dropped to 13% in the December quarter, down 17.5% sequentially, which Rakesh said was in part a result of the increased focus on direct business. A year ago, this segment accounted for 26.5% of total revenue.
“This is partly to do with the continued optimisation of the portfolio. We are also using this phase to focus more on profitability as well as revenue and direct business is a better profitability business for us,” said Rakesh.
In recent quarters, the company has been signing larger, longer term deals in line with its strategy to increase the number of services it is selling to a single client.
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DXC was formed through a merger of HPE and CSC. When private equity firm Blackstone acquired Mphasis from HPE in 2016, there was an agreement that it would provide Mphasis a minimum revenue commitment of $990 million over the next five years. Elevate Your Tech Prowess with High-Value Skill Courses
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There were concerns as to whether revenues from DXC would disappear completely once the five year period ends in September. Rakesh, however, said, “We have visibility of revenue beyond September as we have signed deals that will close past this date.”
He said the company had been restructuring its portfolio in the past three quarters to reduce dependence on DXC.
“Mphasis has shifted focus away from DXC business to direct channel business to further de-risk business profile. Quarterly run-rate of DXC reduced to $44 million from $73 million in the fourth quarter of 2020-21,” said Aniket Pande, lead analyst – IT and Telecom, Prabhudas Lilladher. “We believe that DXC may stabilise depending on ramp-up of new deal wins or continue to decline, given that Mphasis is consciously shifting away from growing this business.”
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The contribution of DXC to total revenue dropped to 13% in the December quarter, down 17.5% sequentially, which Rakesh said was in part a result of the increased focus on direct business. A year ago, this segment accounted for 26.5% of total revenue.
“This is partly to do with the continued optimisation of the portfolio. We are also using this phase to focus more on profitability as well as revenue and direct business is a better profitability business for us,” said Rakesh.
ADVERTISEMENT
In recent quarters, the company has been signing larger, longer term deals in line with its strategy to increase the number of services it is selling to a single client.
