MphasiS says HP sitting on request for a rate card

Much before the corporate governance issue raised its ugly head at MphasiS, the management of the Indian outsourcing firm had asked for a rate card from Hewlett Packard (HP) that owns around 60% in it.

The Mumbai-based information technology (IT) services company is still waiting for HP to come back with one.

Talking to DNA, Ganesh Murthy, chief financial officer (CFO) of MphasiS, said the company has requested HP to link the rate card with the cost of living.

“We have asked for our rate card from HP. We have made a request and our CEO has come out in public and stated we had asked HP to increase the rate card and link it with the cost of living. Now all this takes time before it is done,” said the senior executive of MphasiS defending the company’s decision to offer steep price cuts to HP customers.

Murthy said he could not give a specified time for when HP would decide on the rate card. “(The decision on rate card) depends on negotiations. It’s very difficult to say (when they will come out with our rate card), it is not my decision. It’s only a demand from us to HP. It’s up to HP to agree or not.”

Murthy said the company followed two pricing models — one for HP and other for non-HP customers. Close to 70% of MphasiS’ business comes from HP. Murthy believes that is one of reason why the US tech company has a major clout in the Indian tech company.

“(We gave these price cuts) because there were demands from HP especially for some select customers. So, we looked at the margins that we make and we looked at potential of growth from (these) customers and we took a conscious business decision to do it,” he said.

Analysts have raised concerns over the collapse of governance at MphasiS, which has offered price cuts to HP customers that has led to dollar revenues falling 8.5% sequentially to $271 million in the quarter-ended January 31.

HP’s discount also impacted MphasiS’ quarter-on-quarter (QoQ) earnings before interest and tax (Ebit) margins, which slipped 300 basis points (bps) despite provision reversals of `43 crore.     Turn to Page 10

Murthy waved off worries of analysts saying the overall impact of price cut on revenues was just 1%.

“I think it is too far-fetched to say that (impact of) 1% on of our revenue is a break down in governance. It is completely overhyped. There have certain price-cuts but our analysts were expecting that. Also, it was not across the board price cut. We didn’t change the rate card with HP. There were certain select customers where we had price reduction ranging from 5% to 10%. It was a business decision we took,” he said.

In 2003, Digital Globalsoft — then a HP-owned listed entity on the Indian stock exchange - went through a similar phase of massive price cuts from HP before HP ended up buying out the minority shareholders in 2004.