Fristsource on course to improve margins, reports robust growth in Q1

MUMBAI: Firstsource Solutions staged a robust performance in the June 2012 quarter backed by robust demand and stable profitability. The business process outsourcing company is likely to sustain its growth given the robust order pipeline. Increasing attrition and a huge pile of foreign convertible debt due for December 4, however, would be major concerns for the company.

Compared with the quarter ago, the company’s revenue rose by 8.6% sequentially to Rs 675.2 crore. Net profit shot up by 25.6% to Rs 29 crore, helped by net interest inflow, exchange gain and higher other income.

The company bagged $160 million (approximately Rs 900 crore) worth of new deals in the June 2012 quarter. These contracts belong to verticals including telecom, media and healthcare and will be executed over the next three years.

Despite salary hikes during the quarter, the company was able to restore its operating margin (margin at the earnings before interest and tax) at 5% from the quarter ago. Compared to the year ago, its margin expanded by 100 basis points. The management expects further expansion in profitability due to higher operating efficiency due to better utilisation of assets.

The company’s seat fill factor, which reflects the capacity utilisation, increased by 200 basis points to 77% from the year ago. It added 2,467 employees during the quarter. These factors hint at a sustained demand scenario.

Maturity of foreign currency convertible bonds (FCCBs) worth $ 237 million (approximately Rs 1,327 crore) due on December 4, 2012 will be a major concern for the company. It had cash equivalents of 750.7 crore as of June 2012. It may not be able to generate internal cash enough to cover the shortfall. The company is mulling options to restructure or refinance the debt obligation.

The stock of Firstsource shot up over 10% on Wednesday to Rs 10.40.