With the RP-Sanjiv Goenka group becoming the largest shareholder in Firstsource Solutions, Rajesh Subramaniam, MD and CEO of Firstsource, is focusing on driving growth. In an interview with Shivani Shinde, he talks on driving synergies with the Sanjiv Goenka group. Edited excerpts:
Was the RP-Sanjiv Goenka group the only one that approached Firstsource?
We were looking at all kinds of options. We were looking at a debt syndicate; those conversations were on for a long time. In the interim, we also saw interest from special investment funds and growth funds, but some of the core thesis of deals with them meant bondholders would have to take a haircut. So, talks with several funds didn’t materialise. We were also approached by strategic players, some from the same industry. Then there was RP-Sanjiv Goenka Group. It made sense for us because for them, this was diversification. This meant the management could continue. They are a high-quality group. All the growth elements the group brought to the table made it easy for me to convince the board of this alternative.
But markets have not reacted well to the deal.
From Firstsource’s perspective, this was expected. If the open offer price was Rs 12.20 and the stock price was high, it had to correct. But I think it’s the company’s financial performance that would help the stock price reach a reasonable level. In the past, too, I had said our worst quarters were behind us.
We have shown a strong performance, with profitability and margin expansion. Our financial performance is back on track.
Are there synergies with RP-Sanjiv Goenka Group you want to leverage? How many board members would the group have in the company?
We are yet to explore the synergies. In November, we will have a strategic committee review to see how we can cross-leverage. If they get to the 50 per cent mark, the majority of the board members would be from the group.
With the foreign currency convertible bonds (FCCBs) hangover gone, what are the opportunities the company would like to invest in?
We will have opportunities to invest in areas in which we were constrained so far, owing to our focus on retaining cash, as we had to repay bondholders.
We see growth in the customer management and health care segments. With the reform mandate in health care services in the US, there are a lot of investments to be made in technology — both in the payer and provider segments. Given the relationship we have with about 800 hospitals, we understand this sector well. I am betting on health care and see it as the place to be through the next three to five years. The second area is transformative deals in the customer management segment.
Since you returned to the company in 2011, you have been focused on improving margins.
My work started in August. It started with driving cost efficiency. I followed the same principals that were followed when this company was founded.
One of these was to make businesses self-contained. So, we figured the excesses and cleaned those. This alone gave us about $10-11 million in cost savings.
The other step was moving away from business that didn’t allow me to make money. We are not ashamed of walking away from business. We have a clear plan of what we intend to do with domestic business, and also of the margins. Domestic business contributes seven to eight per cent to our revenue. I am not looking for growth in the domestic business if I am not getting a certain margin profile. In a lot of my current work, I go back to the customer---either for different pricing or seeking a change in SLA (service level agreement). Some of the earlier SLAs don’t allow me to do profitable business, though some new wins in the domestic business have good margins. We are also looking to enter new market segment and introduce offerings that would give margin profiles similar to those from some of our international work.
What is the margin profile you aim for the company?
Over the next couple of years, I would like to take it back to 14 per cent Ebitda (earnings before interest, tax, depreciation and amortisation) levels. I think this year, we will end with 10-10.5 per cent. Next year, we will be able to raise it to 12-12.5 per cent and after that, up to 14 per cent levels.
Would you consider mergers and acquisitions for faster growth?
It is too early to predict. I am focused on profitable growth. Besides, we have to repay the FCCBs. Then we have to figure the cash reserves and cash generation. I have some repayments, about $45 million a year, starting next year.
