Scoring on processes

Established by ICICI Bank in 2001, Firstsource Solutions Limited (FSL) has been going strong ever since the RP-Sanjiv Goenka group acquired it in 2012. FSL is a leading global provider of Business Process Management (BPM) services with over 30,000 associates spread across 47 global delivery center. Clients are spread in the healthcare, telecom and media sector, BFSI industries from its delivery centers in India, USA, Canada, UK, Europe, Philippines and Sri Lanka.

The company was in the news a few months ago when it acquired US-based mortgage service provider ISGN’s BPO business, as it plans to expand into higher-margin services. The acquisition is expected to improve margins and strengthen the BFSI segment.

Scorecard

FSL’s revenue and net profit clocked a compounded annual growth (CAGR) of 9 per cent and 44 per cent over FY2012-16 respectively. Higher revenues and better cost management resulted in a 21.5 per cent growth in net profit at Rs 713.3 crore in the Q2 FY 2017 as against Rs 58.7 crore in the same period in the previous year. Revenues reported a growth of 12.3 per cent to Rs 884.4 crore for the same quarter. Company’s operating earnings before interest and tax (EBIT) saw a growth of 28.3 per cent y-o-y in Q2 FY 2017 as against the same quarter last fiscal.

Revenues are well-spread across segments—51.3 per cent from the customer management, 31.9 per cent from healthcare, 10.9 per cent from collections and 5.9 per cent from the Indian operations for Q2 FY2017.

Dependence on revenues from the US continues at 55.1 per cent in the same period. UK contributed 38.1 per cent and 6.8 per cent came from India and rest of the world. FSL’s debt-toequity ratio stood at a healthy 0.37x in FY2016 from 0.74x in FY2013.

Ranked sixth by NASSCOM in the Annual Rankings for the ‘Top 10 BPM Exporters’, FSL has all the necessary components to ride the growth in the BPM industry. Further, long-term service contracts such as the one with Sky services UK for a 10-year period, which has just commenced, augurs well. Investors in FSL have a lot to gain going by its performance—return on capital employed (ROCE) improved from 4.50 per cent in FY 2012 to 11.06 per cent in FY 2016 and the future looks promising.

Why Buy

• Consistent growth in revenue and profits
• Debt-equity ratio (x) has come down to 0.37 in FY 2016 from 1.48 in FY 2012
• Niche acquisitions abroad adds value to company

Watch out

• Currency risk
• Competition and risk in the outsourcing business in the US

himali@outlookindia.com