Mphasis woos non-HP investors

It looks like Mphasis, the majority-owned (but still separately listed) Bangalore-based offshore services subsidiary of HP, is making a big push to build support with its minority investors by almost trebling its FY dividend from Rs6.5 per share to Rs17.0. This comes just days after announcing a significant acquisition (see Mphasis takes Digital Risk) which appeared (at least to me) to signal management’s intention to take a firmer grip of the reins and head the wagons away from the HP camp. These moves will surely make it even more difficult for HP to consider buying out minority shareholders as it arguably should have done years ago (EDS acquired control of Mphasis in 2006) and fully integrate Mphasis into its global delivery network (see If only Mphasis was single again!).

As it stands, the HP ‘channel’ is proving a real drag on Mpahsis’ business, with revenues down 11% yoy in Q4 (to 31st October) vs a 21% revenue increase in the ‘direct’ channel. As a result, Mphasis ends the year with 54% of its business deriving from HP clients, down from 62% the prior year. Across the board, Mphasis’ headline FY revenues grew by only 5% yoy, to Rs53.6bn (c.$1bn), and operating margins ticked up a fraction to 16.4%.

It’s hard to see Mphasis getting much attention from HP CEO Meg Whitman with all the other ‘distractions’ to deal with. But I feel Mphasis should be near the top of HP Enterprise Services head, Mike Nevken’s, priority list if only to decide whether to ‘corral the horses’ or let them roam free.