Despite a cash kitty of $100 million, business process outsourcing (BPO) firm Firstsource is ruling out any acquisitions in the near future because of its foreign currency convertible debentures (FCCBs) commitment in 2012. Carl Saldanha, Global CFO, Firstsource tells Sheetal Agarwal a healthy cash generation of around $10 million per quarter and good near-term visibility will drive growth in the future. Edited excerpts:
While the Barclay's card business has been a good deal, what are your plans for boosting revenues from other Banking, Financial Services & Insurance (BFSI) clients?
Besides the Barclaycard UK ($100 million) deal, we operate in two other segments. First, our speciality domain, namely, credit cards collections space. This business is doing very well. Though the market is not growing due to shrinking volumes of credit card outstandings, we continue to gain market share from our competitors. We work for 8 of the top 10 credit card companies and we are mining those accounts well.
As a result, we continue to grow in a slightly declining market. The other piece is the traditional BFSI side work like mortgage, banking, customer servicing, general insurance, etc. That space is doing better than last year. But still, it is nowhere close to where it used to be because the recovery is still not taking place at a grassroot level. The little bit of traction there is largely driven by existing customers. For FY11, BFSI was the fastest growing vertical for us (20 per cent q-o-q growth in March quarter). We expect that momentum to continue in FY12 as well partially driven by full-year impact of Barclay's deal.
How is your Asia business unit, which achieved break-even in the March quarter, expected to perform going forward?
While it was always making cash profits, it achieved break-even at Ebit level in the March quarter. Since the domestic business is expected to gain more traction, I think the Asia business unit will grow higher than our normal growth rates.
Are there further acquisitions on the cards?
We are going slow on acquisitions as we have a lot of debt on our books. We got to release the debt first. So, we are not looking at anything significant as of now. Once we pay off FCCBs in December 2012, we may look at acquisitions.
Our FCCBs worth around $296 million will be up for redemption in December 2012. As of March 2011, we had around $100 million in cash and we will generate approximately $70 million by December 2012. Thus, we should be able to pay around $170 million via internal accruals. We will refinance the balance amount and convert it into an amortised loan.
More From This Section
Your attrition rate is high and has been an area of concern for some time. How do you intend to curb it?
We have hired consultants to work on the same. We have onshore, offshore and domestic attrition at 34 per cent, 66 per cent and 91 per cent, respectively. We have the highest attrition in the domestic market because in the smaller cities, where we have our BPOs, the culture is very different and they are not used to working long hours. We are comfortable with our onshore attrition level and are targeting attrition rates of mid-30s and 50-55 per cent for the offshore and domestic businesses, respectively.
What will be your profit and revenue growth drivers?
While in the last three years we have posted relatively stable growth rates, our margins have not grown much. We believe our average Ebit margin of around 10 per cent needs to move to higher levels. This can be achieved by bringing in new businesses with high margins, utilising our unused capacity of 29 per cent and the turnaround in our Asia business unit. We aim to achieve margins of around 12 per cent in the next two-three years. We expect FY12 revenue growth to be better than FY11, along with margin improvement.
