Mphasis faces growth bumps on softness in BFSI vertical

Bengaluru Slowdown in the financial services segment doesn’t augur well for mid-tier IT services firm, Mphasis with no near-term recovery in sight.

Brokerage firm ICICI Securities wrote in a note that the company is focussing on expanding non-BFS (banking, financial services) verticals in order to drive growth.

“Uncertainty around recession and macro weakness has slowed down discretionary technology spends in Mphasis’ largest vertical BFS (with aaround 50 per cent of revenue) with no signs of revival in the near term,” the brokerage said in the note.

The note said that weak growth in the wallet share from companies in PE firm Blackstone’s portfolio seen as another growth dampener for the mid-tier IT firm. Blackstone is the majority shareholder of Mphasis.

Our concerns are, weak near-term growth outlook in BFS (with around 50 per cent of revenue and non-BFS verticals have grown at lower-than-company average and are at sub-scale size, which is less than $250 mn,” ICICI Securities said. “The company has weaker margins versus mid-cap peers. Also, it has not been able to gain significant wallet share from companies in the Blackstone portfolio,” it added.

However, Mphasis’ momentum in bagging large deals and its focus on increasing the share of non-BFS verticals in the overall revenue pie are seen as positives for driving growth of the company.

Not only Mphasis, most Indian IT firms are facing growth bumps in their BFSI vertical owing to weakness in the major markets. Especially, mortgage, investment banking, and retail banking segments are facing softness in demand in the US market. IT firms with larger exposure to BFSI vertical are witnessing low revenue growth owing to this trend.

Meanwhile, many enterprises operating in the BFSI space are also looking at in sourcing or doing their technology work by their own employees than outsourcing it to IT vendors like Indian IT firms. This is seen as another growth dampener in current time.

However, most firms are trying to overcome these challenges by winning more large deals apart from raising the share of other verticals.