Mphasis Ltd’s Deal with Blackstone Will Help the Indian IT Firm Boost Revenue

With the Blackstone Group announcing that it has acquired Hewlett Packard Enterprise Co’s share in IT outsourcer Mphasis for US$1.1 bn, the former has made its largest individual investment in India yet.

The deal, executed all in cash, is testament to Blackstone’s positive outlook of the performance of the outsourcing business. The announcement comes close on the heels of a recent US$170-mn deal by Blackstone to buy a minority stake in IBS Software, an Indian firm.

While routine IT spending by companies has been on the decline, Blackstone reckons that the IT industry in India will display double-digit growth as companies are now making a move toward digital services, which offer higher margins. Mphasis boasts a strong presence in the digital services sector in India, and expects to make the most of the latest IT trends.

This is where Blackstone expects the real revenue growth will come from. Amit Dixit, senior managing director, Blackstone said that their strong commitment to the Indian IT sector has been encouraged by the strong returns that PE investors have gained from here in the past. He added that the sector was well poised for growth.

With Growth in its Hands, Mphasis Needs to Work Smartly to Win New Business
The National Association of Software and Services Companies (Nasscom) projects exports from the Indian IT and software services industry to notch $121 billion in the current financial year. The industry body says that revenue from software services is expected to show a 10-12% growth rate.

Now that the deal is through, analysts expect Mphasis to outperform its CAGR of 6%, which hasn’t moved noticeably since 2009. Despite the growth opportunities that lie ahead, monetizing them will now be an arduous task for the Mhpasis CEO, Ganesh Ayyar, and his team.

While Mphasis was earlier dependent on HP for the better part of the business it received and the resultant growth, it can now hope to win more business directly from new clients.

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