MPHASISNSEQ4FY22April 29, 2022

MphasiS Limited

9,163words

64turns

11analyst exchanges

3executives

Download PDF ↗MPHASIS stock page →

Management on call

Nitin Rakesh

CHIEF EXECUTIVE OFFICER,

Manish Dugar

CHIEF FINANCIAL OFFICER,

Suraj Digawalekar

CDR.

Key numbers — 40 extracted

90%

crease their Tech spends in 2022 with spending target strongest in Software and Retail, with over 90% of respondents looking to spend more. In our view, the macro issues that have surfaced and intens

nancial performance. And this study shows that Tech savvy enterprises outperformed their peers by 6% on average during the DocuSign Envelope ID: 817CFBFD-D3E6-4BBF-867B-5003455CCFA9 pandemi

26.8%

rns. Moving on to our performance for the quarter and the year: Our 4th quarter FY22 revenue at 26.8% YoY growth in constant currency terms is at a decade high at $430.7 million for the quarter, repr

430.7 million

r 4th quarter FY22 revenue at 26.8% YoY growth in constant currency terms is at a decade high at $430.7 million for the quarter, representing a 4.3% sequential growth. Our Direct business has crossed the quart

4.3%

in constant currency terms is at a decade high at $430.7 million for the quarter, representing a 4.3% sequential growth. Our Direct business has crossed the quarterly run rate of $400 million and it

400 million

representing a 4.3% sequential growth. Our Direct business has crossed the quarterly run rate of $400 million and it grew 4.7% quarter-on-quarter and 37.6% year-on-year in constant currency terms in the 4th

4.7%

ential growth. Our Direct business has crossed the quarterly run rate of $400 million and it grew 4.7% quarter-on-quarter and 37.6% year-on-year in constant currency terms in the 4th Quarter. The ye

37.6%

siness has crossed the quarterly run rate of $400 million and it grew 4.7% quarter-on-quarter and 37.6% year-on-year in constant currency terms in the 4th Quarter. The year-over-year overall and Dire

43%

rowth as we have called out through the year. Our U.S. geography with Direct had robust growth of 43% year-over-year in 4th Quarter FY22 over 4th Quarter FY21 in constant currency terms. Q4 rounds ou

21.2%

Q4 rounds out our strong performance in FY22 where we recorded an overall FY22 revenue growth of 21.2% in constant currency terms, which places us well above the industry average in FY22. Our FY22 Dir

34.4%

ncy terms, which places us well above the industry average in FY22. Our FY22 Direct revenues grew 34.4% in CC terms, which we believe is industry leading growth amongst our peer group. On an organic

30%

ieve is industry leading growth amongst our peer group. On an organic basis, Direct business grew 30% plus in CC terms in FY22. This follows what was our industry leading growth of 17% in FY21 for th

Advertisement

Guidance — 20 items

Nitin Rakesh

opening

“What you see here is the IT forecast from calendar Q1’22.”

Nitin Rakesh

opening

“Respondents, which are typically large enterprises, said they expect to increase the 2022 IT budget relative to 2021 actuals.”

Nitin Rakesh

opening

“At least three-fourths of the enterprises in every industry group intended to increase their Tech spends in 2022 with spending target strongest in Software and Retail, with over 90% of respondents looking to spend more.”

Nitin Rakesh

opening

“Finally, investing for growth by using operating leverage and operating a stated target operating margin brand continues to be the philosophy.”

Vimal Gohil

“One is the overall impact of the rising interest rates on US BFSI and the second part will be, what would be the impact on your mortgage business that is the Digital Risk business.”

Nitin Rakesh

“So, while there will be some short-term impact, but we believe that we have baked that into our outlook for the full year.”

Mohit

“So, how should we read BFSI growth as a whole, like Insurance is doing well, but BCM what you guys expect, I mean this quarter was a little slower, compared to the previous one?”

Mohit

“So, how should we read utilization numbers and where do you expect it to stabilize going forward?”

Nitin Rakesh

“So, I think that the utilization metric will continue to be monitored and managed closely, but at the same time, we don't expect it to improve sharply.”

Nitin Rakesh

“Even without that sharp improvement, we do expect it to be a tailwind to margins, because effectively we are constructing the lower half of the pyramid in a very consistent, methodical and sustainable manner.”

Risks & concerns — 15 flagged

FY23 will also see a substantially lower drag to growth from DXC than we had in FY22.

— Nitin Rakesh

One is the overall impact of the rising interest rates on US BFSI and the second part will be, what would be the impact on your mortgage business that is the Digital Risk business.

— Vimal Gohil

More on the operational side, so you spoke about this little slowdown potential in the mortgage side which is reflected in BCM in this particular quarter.

— Mohit

With regards to pricing given the concern around increasing interest rates and the possibility that DocuSign Envelope ID: 817CFBFD-D3E6-4BBF-867B-5003455CCFA9 banks look to optimize their spends, do you think this impacts the possibility of price increase in this vertical?

— Manik Taneja

From the employees -- point of view I know that we do not have a standard cycle of wage increases, but on an average throughout the year, what kind of wage increase are we expecting to happen and the impact of that on margins?

— Nirmal Bari

So, I think I see that as a growth related or a large deal related ramp up situation versus any impact or pressure from pricing or demand.

— Nitin Rakesh

And Logistics, you partly answered but do you think any headwind because of these energy-related updates?

— Dipesh Mehta

At this point in time, no, so that’s what I said Dipesh no headwind to report at this point in time, we are watching it.

— Nitin Rakesh

So, they are actually passing a lot of the hikes back to the customer, it is not really a stress on their P&L.

— Nitin Rakesh

But I think after multiple quarters of significant decline we have seen the revenue kind of stabilizing in this quarter.

— Vibhor Singhal

So, yes, there is pressure on supply, yes, there is wage inflation.

— Nitin Rakesh

As we had explained, the impact of M&A charges in the P&L was about point 0.8% in the immediate; so, we did the transaction sometime in September, the quarter when the full impact came in was the quarter after that, which is October, November, December.

— Manish Dugar

One is the absolute cost reduces and the second is the impact of that on the revenue, as the revenue base grows, becomes lesser, right.

— Manish Dugar

So, effectively, we had an impact of 0.8% in October, November, December and 0.7% in Jan, Feb, March.

— Manish Dugar

Nitin talked about the cautious optimism, and we would be happier if the supply situation was better.

— Manish Dugar

Advertisement

Q&A — 11 exchanges

First of all, just a data point, if you could help me with what was the contribution for Blink in our Direct business for FY22, that's one data point. The second is a two-part question. One is the overall impact of the rising interest rates on US BFSI and the second part will be, what would be the impact on your mortgage business that is the Digital Risk business. If you could just DocuSign Envelope ID: 817CFBFD-D3E6-4BBF-867B-5003455CCFA9 highlight if you are seeing any sort of pain there? And given the rising interest rates, do you see banks across, especially the legacy banks in the United

Nitin Rakesh

So, on the Blink question, the revenue for the quarter is around $11 million. And also, it has grown quite robustly quarter-over-quarter. So, from a sequential growth perspective, this was fully baked into our Q3 numbers as well. So, I think that's a good way to look at sequential growth on an organic basis. On the other question around the macro environment and the demand situation, it's fair to say that while there have been concerns raised and some of the bank earnings have talked about higher provisions, at this point, the demand is still fairly robust. The programs that many of our client

More on the operational side, so you spoke about this little slowdown potential in the mortgage side which is reflected in BCM in this particular quarter. So, how should we read BFSI growth as a whole, like Insurance is doing well, but BCM what you guys expect, I mean this quarter was a little slower, compared to the previous one? And second was on the utilization. So, you gave the margin outlook, but the utilization dropped quite sharply in Q4. So, how should we read utilization numbers and where do you expect it to stabilize going forward?

Nitin Rakesh

So, let me answer the utilization question first. Utilization is a direct correlation of the supply chain transformation that we talked about over the last two quarters. We have on-boarded more than 5,500 freshers in the last two quarters alone and that obviously will have an impact on utilization, not only including freshers even excluding freshers, because as they go out of training, they get excluded from the trainee number, but they are still sitting in accounts and still to be deployed into billable roles. So, I think that the utilization metric will continue to be monitored and managed c

Just wanted to touch base on something that we used to talk about in the past, in terms of the growth within the Blackstone portfolio set of companies. Could you help us understand how this segment has done over the course of FY22, given the fact that it is a still a smaller piece of contribution to the overall business and how do you see this panning out going forward?

Nitin Rakesh

So, I think you mentioned it, you know, we used to talk about it in the past. And there is a reason why it is in the past. We decided not to break it out as a separate segment, because it sits in the Direct business. I think it's fair to say that we continue to make good progress. While we are selective, the size of the portfolio that we operate in, not just in the Blackstone, but we actually upgraded that to PE channel play is also fairly large. So, I think we continue to make good progress in that. And all I can tell you is that some of those deals are included in the large deal announcement

My first question is on the margins front. From the employees -- point of view I know that we do not have a standard cycle of wage increases, but on an average throughout the year, what kind of wage increase are we expecting to happen and the impact of that on margins? And secondly, on the acquisition front there is a standard cost that was being added, so will that cost remain the same in the coming quarters, as well?

Manish Dugar

So, from a people cost perspective, there is a process what we follow wherein it's a continuous evaluation on the geek quotient, as we call it. And based on that a large part of the team, which is primarily the delivery organization gets evaluated and correction keeps happening. There is no number that we guide to, and we have been doing over the quarters, and we continue to do it. So, it's baked in. From an acquisition perspective, we had talked about the fact that typically, the acquisition charges come from an accelerated accounting perspective, which means the costs are higher in the begin

So, let me take the first part of that question, which is on the Top 5 clients and then Manish can answer the unbilled question. I think, firstly, we are very pleased with the fact that we managed to grow these Top 5-6 customers very robustly. I think, in fact, all the Top 10 clients have grown robust, as you saw from the metrics in the analyst deck. The way to think about it is it's not just wallet share gains, it's a combination of increased spend, which is the ability to play in new spend areas is extremely important for that. And that's the reason why keeping an eye and constantly reinvent

Manish Dugar

On the unbilled, the primary issues or primary reasons are three. One is, there is typical as you know, the revenue accounting, when you do a fixed price contract is on a percentage of completion, while the invoicing follows a different schedule. So, there is a mismatch between that, but we should be able to catch up, this month or this quarter. The second thing is about, a large part of our clients requires a PO reference when the invoicing is done, and that PO reference at times, take time to come. And if you take what happened at the end of the quarter, we should be able to get the document

A couple of questions, first about the Logistics & Transportation. Do you think any implication because of energy related uptake which we are seeing across the globe, because this quarter margin seems to be slightly softer as well as the revenue growth? So, if you can provide some sense how you expect this to play out over FY23? Second question is about the emerging business update. Can you provide some sense how this emerging business is playing out across some subsegments? So, that update would be helpful, which area is doing well, which is not doing well. And the last question is about BFS-

Nitin Rakesh

On Logistics & Transportation I think the issue so far, the inflation adjustment or reset of demand is not the real issue, the only reason you are looking at softness probably is base effect. And margin is a reflection of, how much growth and utilization in practice sitting in their vertical because they definitely expect some, they would have done ramp ups in advance of billing and deal closure. So, I think I see that as a growth related or a large deal related ramp up situation versus any impact or pressure from pricing or demand. On your second question, around BFS-related, I think the Tech

First question was basically on DXC, I know it’s just a slice of the revenues and probably doesn’t matter much in the overall scheme of things. But I think after multiple quarters of significant decline we have seen the revenue kind of stabilizing in this quarter. So, what is the outlook for this piece of business at this point of time? Do you think it might have bottomed out? How's it looking out in terms of the deals and the contracts that we have in this business? Till when is their continuity just maybe some subjective feedback on how should we look at the business going forward? DocuSign

Nitin Rakesh

So, I think, we called out maybe over the last quarter or two, that we are somewhere in the ballpark of, where we think this business can stabilize. So, I wouldn't read too much into sequential ups and downs based on projects or engagements. So, I think it's fair to assume that our focus will be to continue to grow the Direct business. And we still believe that we have the ability to have a revenue line with this segment, but I think the prioritization and the focus of growth, given just the nature of our strategy will be to prioritize Direct growth. So, I wouldn't read too much into the quart

Just wanted to understand in FY22, what was the M&A related cost in terms of basis point and how this will look like in FY23, just some clarity required there.

Manish Dugar

So, first from a concept perspective, once the transaction is done, there is a purchase price allocation that happens, and then the cost comes in. And the cost is typically in an accelerated basis, which is why, it starts with a higher number and then it eventually goes down. As we had explained, the impact of M&A charges in the P&L was about point 0.8% in the immediate; so, we did the transaction sometime in September, the quarter when the full impact came in was the quarter after that, which is October, November, December. And then in this quarter, which is January, February, March, that num

Are we pressing to reach a $2 billion run rate in the current year? Or what would be our target?

Manish Dugar

What we have talked about is being industry leading so far as the Direct business is concerned and it all depends on how the industry does. But last year was a coming back year for the industry. So, there is a general assumption that this year will probably be less growth over the previous year than we saw the last year. So, depending on how the numbers go, obviously, the aspiration is to get not just to the $2 billion, but to higher number, but we don't guide a number as you know. We are confident of getting to industry leading on the Direct side. And I understand that, this year the industry

Three questions, if I may. The first one is, on the Blink growth. Now, when we acquired it was doing 42% CAGR; for the quarter it's now growing at 20%. So, if you can help us understand, what is driving this solid acceleration? And does it change the assumptions for earnout in margins? I heard you in the previous question, but probably would like to understand that again. DocuSign Envelope ID: 817CFBFD-D3E6-4BBF-867B-5003455CCFA9 The second is on the margin compression in Logistics & Transportation vertical, how should we read that, I mean, it's not one quarter, but across the four quarters of

Nitin Rakesh

So, I think the last one is pretty straightforward. The margin outlook for FY23 is all-inclusive based on what we know today. If there is a new M&A transaction that happens during the year that's a different discussion. At that point, we will give you what the guidance will look like based on what impact that might have. Based on the current visibility that is a reported margin outlook. On your first question around Blink, I think the sequential growth is not 20%, but closer to 10%. It is pretty much aligned with the management plan. I don't think there is any dramatic shift in any assumptions

Thank you, everyone for your interest. And thank you for logging in early into the call. I know the time zones create a little bit of a challenge. But we are appreciative of your interest. And we look forward to talking to you after the next quarter earnings as well. Thank you again and have a good day.

Management

Speaking time

Nitin Rakesh

Moderator

Manish Dugar

Mohit

Vibhor Singhal

Sandeep Shah

Vimal Gohil

Manik Taneja

Nirmal Bari

Dipesh Mehta

Advertisement

Opening remarks

Suraj Digawalekar

Good morning, everyone. And thank you for joining us on Mphasis Limited Q4FY22 Earnings Conference Call. We have with us today Mr. Nitin Rakesh - Chief Executive Officer and Mr. Manish Dugar - Chief Financial Officer. Before we begin, I would like to state that some of the statements made in today's discussion may be forward-looking in nature and may involve certain risks and uncertainties. A detailed statement in this regard is available on the Q4 Results Release that has been sent out to all of you earlier. I now hand over the floor to Nitin to begin the proceedings of this call. Thank you and over to you Nitin.

Nitin Rakesh

Good morning, everyone. And thank you for joining our earnings call this morning. We apologize for the slight delay, because we had to wait for the deck to get uploaded to the exchange portal. As we completed FY22 and moved into FY23, we took stock of key themes shaping our industry, what our clients are saying and the spend patterns. What you see here is the IT forecast from calendar Q1’22. Respondents, which are typically large enterprises, said they expect to increase the 2022 IT budget relative to 2021 actuals. At least three-fourths of the enterprises in every industry group intended to increase their Tech spends in 2022 with spending target strongest in Software and Retail, with over 90% of respondents looking to spend more. In our view, the macro issues that have surfaced and intensified over the last couple of months are not likely to change the bigger secular picture. That being said, some enterprises may tactically re-examine some portions of their Tech spends depending on th

Advertisement

← All transcripts MPHASIS stock page →

MphasiS Limited

Market Movers