Despite reduction in the margins of the software business, consolidated net profits rose 4 per cent compared to the March quarter, boosted by non-operational items such as:

But for these items, the consolidated net profits would have dipped by about 2.7 per cent compared to the March quarter. However, this was to be expected, as hikes in salary were always on the cards. Salary and allowances rose 18 per cent in the June quarter compared to the March quarter.

Riding on BPO

MsourcE contributed 30 per cent of MphasiS BFL group's revenues. However, this understates the importance of MsourcE to the group. MsourcE's assets are likely to be about 50 per cent of the total non-cash assets of the group. In this context, a swift turnaround in the performance of MsourcE is necessary to support valuations.

Indeed, MsourcE is not only turning around but is also showing signs of accelerating. In the June quarter, MsourcE's loss, as a proportion of revenues, was about 2 per cent compared to 10 per cent for the March quarter. This was despite a 20 per cent increase in headcount. This increase promises strong revenue growth, while improvement in margins means a return to profitability in the second quarter.

While the fortunes ride on BPO, it is also important that the IT services business does not turn out to be a drag. The news is encouraging on this score too. The offshore business is showing signs of picking up. There was a 20 per cent increase in headcount in the offshore segment in the quarter ended June. This again promises reasonable revenue growth in the months ahead. With billing rates also stabilising, the outlook is for an improvement in profit growth in the IT businesses too.

Built on growth

With no major shocks or surprises and with reiteration of the targets set in April 2003 by the management, expected earnings growth continues to be about 40-45 per cent. The stock trades at about 12 times its expected earnings for the year ended March 2004. A multiple of 12 requires growth momentum in per share earnings to continue beyond March 2004. However, the BPO business is subject to several risks, many of which may emerge only later. In this backdrop, it would be better if fresh investments are considered at declines in stock price from the present levels.

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