MphasiS, EDS in talks to bill in rupees

BANGALORE (Reuters) - Indian software and back-office services firm MphasiS Ltd (MBFL.BO) is in talks with parent Electronic Data Systems EDS.N to bill contracts in rupees as it remains concerned about the rise in the Indian currency, its managing director said.

"With the dollar revenue, we continue to work with our customers to ensure that we have some protection and a vehicle in place to get a higher rate because of the currency appreciation," Deepak Patel said on Friday at the Reuters India Investment Summit.

The rising rupee, which hit a near-decade high of 39.16 in November, has been a concern for the Indian outsourcing industry, where a majority of revenue is dollar denominated.

"Probably most of the damage is done, that doesn't mean that there won't be more damage," Patel said on the rising rupee. He added that, in the longer term, the rupee "has nowhere else to go but appreciate."

Patel also said the company is evaluating a plan to set up a business process outsourcing unit in the Philippines as it is a lower-cost option for some BPO services.

"In the next hundred days we will have a story to tell, at least one way or the other, whether we want to head there," he said.

BEYOND SUBPRIME

The company also has not yet been hurt by the turmoil in the U.S. subprime mortgage segment, although the crisis has not completely played its course, Patel said.

"It's probably wishful thinking that it (the subprime crisis) will get played out in very short order ... It is going to be a long drawn out scenario."

MphasiS, which is majority-owned by U.S. computer services firm EDS, gets about 45 percent of its revenue from the financial services industry.

U.S. banks have announced billions of dollars of write-downs tied to the U.S. housing slump, as defaults soared and the value of subprime mortgages that investors deemed too risky plummeted.

Analysts have predicted that companies operating in the financial sector would look to outsource more of their operations to save money as they lick their wounds.

Patel had said in September that MphasiS was poised to win large outsourcing deals in newer markets like Australia and New Zealand by leveraging on its parent's strength.

"We will be making additional investments in 2008 to increase our sales presence in Australia and New Zealand," Patel said.

The company, which has orders of more than $1 billion to be executed over 10 years, plans to hire about 8,000 to 8,500 people this year as it looks to service a significant demand base, Patel said.

CROSSING TAX HURDLE

Patel said the company is hoping that the tax-free status of software technology parks (STPIs) will not be "abruptly phased out" even as it makes investments in Special Economic Zones (SEZs) to protect itself from possible higher tax rates.

Firms like MphasiS have been enjoying a 10-year tax-free status for STPIs, but the exemption is set to end in March 2009.

"Especially with the appreciation of the rupee putting pressure ... you can't assume that this current (situation of) India being the destination of choice for IT is going to remain forever."

Up until now, software service units set up in STPIs have not had to pay taxes on exports, but they do have to pay taxes on business they get from India.

Software firms are hoping that once the STPI scheme ends, they may be able to migrate to SEZs and benefit from tax incentives in those zones.

(Additional reporting by Aniruddha Basu and Supantha Mukherjee; Editing by Bernard Orr)