Msource proves to be MphasiS’ cash cow

IRIS

Looking at the first quarter results for the fiscal 2002-03, it is evident

that Msource, the call center subsidiary of MphasiS BFL, has been the group’s

growth driver. Q1 revenues of Msource rose 274 per cent to Rs 14.58 crore over

Rs 3.90 crore in the corresponding previous quarter. (68 per cent

quarter-on-quarter)

To further expand its earnings, Msource plans to introduce a third shift at

its call centers. This shift, a day shift, would provide non-voice services,

where queries would be answered via email, reducing cost. Additionally, the

services would be at 30 per cent discount.

Responding to questions on the effects of the sluggishness in western

markets, which has led to a drop in IT spending, on the company’s call center

business, Jerry Rao, chairman and managing director, MphasiS BFL group, said,

‘Msource has been able to bear the brunt of the downturn primarily because it

operates its call centers in India and India has a very small share in the world’s

call center business.’

‘In fact, its share in the total IT spend has actually risen,’ Rao said.

Replying to queries posed by analysts during a telephonic conference, Rao said

that the mix of the MphasiS group may change and lean towards Msource.

One big client had been added to Msource’s list during the quarter ended

June 2002, taking the total number of active clients to 11. However, two clients

delayed pilots with the company. `This is expected to eventually delay ramp-up,

cautioned Rao. ‘Msource, however, believes its opportunities lie with its

existing clients’, said Rao.

‘Though the level of panic has been lower than expected, the whole issue is

of delay rather than cancellation,’ Rao said about decline in IT services

business. He dispelled concerns over a resource crunch faced by Msource and also

of competitors trying to use the excuse of Indo-Pak tensions to reduce

outsourcing to India.

A survey conducted by the company revealed that though there would probably

be no curbs on spending in the coming year, the point was that there would

probably be no great increase in the spending either.

MphasiS expects the last quarter of the current fiscal to be fairly vigorous

with some back-ended growth then. This growth is expected to be drive by the

existing customers. Msource has been growing steadily over the past two quarters

since more and more of its customers are moving from the pilot to the ramp-up

stage.

In the IT services segment, the company has also broken into the pharma and

healthcare segments by forging alliances with a leading hospital chain in south

Asia and two US pharma companies. MphasiS is building around security and

getting specific skills for these companies and not just doing some general work

for them.

Responding to questions on risks faced by his company, Rao said that though

risks were fairly low, in the unlikely event of a further drastic cut in the US

IT spending, especially put in context of the recent dip in the markets, there

could be an adverse effect on the IT services business. ‘The call center

business could be effected not so much by the Indo-Pak tension, but more because

of telecom outages, which could effect billing,’ he said.

Msource would continue to add between 100-125 people a month, whereas in the

software business, there might be minor additions. Msource has spent Rs 10 crore

this quarter. For the whole year, the apex spending should total $10-11 million.

Rao assured that Msource did not run the risk of slipping in the red once

again. Msource had no separation in clients in the past year and it had 11 of

the total in the software business, which clocked at about 75.