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What Are H-P's Plans for Mphasis?

Published on June 24, 2010
by Dhanya Ann Thoppil

Ever since Indian software services exporter Mphasis struck a three-year deal to provide IT services to Hewlett-Packard (HPQ) in April 2009, a big question on minority shareholders’ minds has been whether H-P might take its Indian partner private.

H-P owns a 60.6 percent stake in Mphasis and is the firm’s biggest client. The Indian company gets more than 70 percent of its revenue from the U.S. computer maker.

Looking at Mphasis’s relationship with H-P, analysts say they’re being reminded of the experience of Indian software firm Digital Globalsoft, a onetime Compaq unit that became part of H-P after their 2002 merger.

“H-P’s tough pricing tactics held sway through the first half of 2003 and Digital had to give significant price cuts to H-P which impacted its margins,” says CLSA Asia-Pacific Markets analyst Bhavtosh Vajpayee in a recent report.

The brokerage also raises concerns that Mphasis might face an encore of Digital Globalsoft’s “value-dilutive” merger with H-P’s India unit in 2003, when Digital agreed to take over HP Services’ India Software Organization in an expensive deal much to the ire of its investors.

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