Kshema Technologies acquistion boosts topline growth for Mphasis

Mumbai:
14 July 2004

Mphasis BFL had in April '04 acquired the south-based software solutions company Kshema Technologies for approximately $21 million. The acquistion was done through a combination of stock and cash. The cash component was about $6.8 million.

Through the acquistion of Kshema, Mphasis its headcount of the IT services business went up from by 305 to 2,300. Mphasis which announced its first quarter results had also taken into account Kshema's numbers for 1 month.

Kshema Technologies acquistion boosted the topline growth for Mphasis. Though Kshema's revenue accounted for about 3 per cent of consolidated revenue for Mphasis in Q1, it is expected that this number will improve in the second quarter as Kshema would contribute 8-9% of Mphasis' consolidated revenue in Q2.

Mphasis added 10 clients (11 new clients in Q4) inQ1FY05 for IT services business.

While the company has expanded its services offering by acquiring companies in niche areas like Kshema, analysts feel that slower organic growth of ITS business (3-4% QoQ over past 3 quarters) is a matter of concern.

Q2FY04 due to increased marketing and sales investment. Mphasis has significantly expanded its sales/marketing team in Q1. It is expected that the company's focus on maintenance revenue will bring stability on revenue front.

Mphasis' ITS revenues are relatively more volatile than frontline Indian IT companies due to higher portion of project revenues and lower maintenance revenue. Frequent ramp-up at the start of the project and ramp-down after completion of project results in volatile capacity utilisation and unpredictability of future revenue.