Investors punish MphasiS scrip

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Mumbai, Feb. 25: MphasiS Ltd, the independent software subsidiary of Hewlett-Packard (HP), plunged 28 per cent on the bourses today after reporting a dismal set of quarterly numbers and grave accusations of poor corporate governance standards.

On the BSE, the scrip crashed Rs 178.10, or 28.43 per cent, to Rs 448.40 as investors punished the stock after a foreign brokerage raised an alarm that the company had been doling out discounts to the HP clients, thereby crimping its margins and profits.

On the NSE, the scrip tumbled 28 per cent with the number of shares traded leaping to 1.22 crore from a weekly average of 26.7 lakh — a surge of 356 per cent.

The lower prices given to the clients of Hewlett-Packard overshadowed the quarterly numbers.

Brokerage CLSA slammed the company and said its “financial performance is now peripheral to the central issue of the shocking collapse in its governance standards”.

Nimish Joshi, Bhavtosh Vajpayee and Arati Mishra said in a note that “the harm done to not only MphasiS’ but also HP’s reputation is likely to be long lasting”.

They asked why MphasiS had failed to disclose the $9-million benefit from one-time revenues last quarter, which had been concealed then.

The report said the incident brought back memories of HP’s shenanigans in 2003 when it rode roughshod over the interests of minority shareholders of Digital Globalsoft. “In 2003, Digital Globalsoft (then a HP-owned listed entity) went through a similar phase of massive price cuts from HP before the latter ended up buying out the minority shareholders. We see a similar pattern repeating with MphasiS,” the CLSA analysts added. HP holds close to 61 per cent in MphasiS.

The analysts said the price cuts from HP, which account for 68 per cent of MphasiS’ total revenues, was responsible for the sequential decline in revenues.

MphasiS CFO Ganesh Murthy told reporters in Bangalore that the company reduced the rates it charged for its majority shareholder’s clients as customers asked for lower prices during the quarter that is traditionally weak.

Balu Ganesh Ayyar, chief executive officer, said the company had two types of relationships with HP — one as a shareholder and the other as a customer. “We hold them at arm’s length. We deal with HP exactly the same way as we deal with any other customer,” he said.

On Thursday, the company reported a lower net profit of Rs 226.67 crore for the quarter ended January 2011 compared with Rs 268.27 crore in the corresponding period last year.
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