Mphasis to lose FedEx business accounting for 8% of total revenue

Three people familiar with the development said FedEx, which accounted for $130 million of Mphasis's $1.61 billion in revenue for the year ended March 2024, will end its business arrangement with the Bengaluru-based IT firm by the end of the year after a ten-month transition period.

At its peak in FY2024, FedEx accounted for $35 million of Mphasis's revenue in a quarter; business from the logistics giant is expected to be nought by the end of 2025.

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This development could significantly impact Blackstone's plans to exit Mphasis. In 2016, Blackstone spent about $827 million to acquire 60.48% of the shares of the promoter, Hewlett-Packard, becoming the majority owner of Mphasis. In 2017, Nitin Rakesh assumed the role of CEO. Over the last nine years, Blackstone has cut its holdings to 40.14%.

A loss in business from FedEx could hinder Mphasis's overall growth in the current fiscal year, making it more challenging for the New York-headquartered private equity giant to sell its holdings.

Mint independently could not ascertain the reason behind FedEx ending its over two-decade-old business ties with Mphasis. Nonetheless, FedEx is the third-largest client of Mphasis after banking giants JPMorgan Chase & Co. and Charles Schwab Corp.

Mphasis's five largest clients accounted for 42% of its total revenue last year, according to the company's disclosure. JP Morgan brought in 14% of Mphasis's total business, while Charles Schwab, FedEx and two others accounted for 28%, according to an executive.

 

Mphasis did not answerMint’s questionnaire on the FedEx account and said it continues to have a “robust and expanding pipeline."

Mphasis optimistic

“As you are aware, we do not comment on individual client contracts," said a spokesperson for the company on Friday. “We have a robust and expanding pipeline, with overall growth reaching 86% year-over-year and 26% sequentially in the fourth quarter (Q4FY25), marking the highest quarterly increase in the past 12 quarters. We also have a healthy pipeline, with non-BFS (banking and financial services) jump of 99%, significantly contributed by logistics and travel. Our large deals pipeline also saw a significant surge, rising 40% sequentially and 154% year-over-year, reflecting focused execution."

Emails sent to FedEx and Accenture on 28 May went unanswered.

Mphasis reported a 4.4% revenue growth last year to $1.68 billion, followed by a 6.3% revenue decline in the year ended 2024. This comes at a time when two of its other rivals have also witnessed slow business with their largest clients: Sonata Software Ltd, which ended with $1.2 billion in revenue last year, and LTIMindtreeLtd, which ended with $4.49 billion in revenue.

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Mphasis’s issue with one of its large accounts comes at a time when a few of its peers, including Sonata Software and LTIMindtree, faced problems with their large accounts.

Sonata said it was likely to record lower-than-expected revenue from its “largest client" Microsoft Corp, for January-March 2025, as reported byMinton 4 May.

The sixth-largest IT firm, LTIMindtree, admitted to getting lower revenue from Microsoft as it passed productivity gains to the tech giant. Microsoft fetched upwards of $50 million and $100 million for LTIMindtree and Sonata Software, respectively.

Still, Mphasis’s management appeared guarded in response to questions raised on revenue decline from a top client.

Explaining it away

“The decline you're seeing is not linked to any one customer," CEO Rakesh told analysts in a post-earnings interaction with analysts on 24 January, when asked about the decline in business from its largest clients. “Some of it was expected, but it's not just one customer-led. I don't think it is constructive to over-index the conversation on ‘a customer.’ As I said, right, we are aware of all the speculation and the rumours.

“The talk of FedEx ramping down or cutting its partnership with Mphasis was making the rounds since last September," said a Mumbai-based analyst on condition of anonymity. “They are trying to offset the loss through another big logistics player."

This decline from FedEx suggests that large multinational companies are reassessing their tech strategies in the wake of Gen AI and an uncertain macroeconomic environment caused by US President Donald Trump’s tariff reversals.

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Last year, Mphasis’s 4.43% growth was the slowest among all its mid-cap rivals, including Persistent Systems Ltd and Coforge Ltd, which grew 18.8% and 31.2%, respectively. Worryingly for Mphasis investors, it was the only mid-cap company to report a decline in headcount, even as its rivals expanded their workforce. Mphasis ended the year with 1,222 fewer people, having 31,442 employees.

To be sure, Bengaluru-headquartered Mphasis has seen a decline in business from logistics and transportation companies since March 2023. Revenue from these companies, which accounted for 13.3% of the total at the end of March 2023, comprised 12.5% of overall revenue last year.