Company Pins Hope on Number Portability, US Healthcare Reforms
THE stock of Firstsource Solutions has lost one-fifth of its value on bourses within a month of declaring its September 2010 quarter performance. Also, it has consistently underperformed the ET Infotech index.
The stock may remain at the current valuations in the short term given the absence of a major trigger. Firstsource Solutions is a business process outsourcing (BPO) company with . 1,990 crore in revenue in the 12 months ended September 2010. It provides customised BPO services across segments, including healthcare, telecom, media, and banking and financial services (BFSI). The company operates 42 delivery centres spread across India, the US, the UK, and Philippines
While the overall sentiments for broader IT companies have improved over the last few quarters, Firstsource is yet to report a turnaround in its financials. Its top line growth remained flat on a year-on-year basis in the first six months of FY11 following weak demand in the telecom and BFSI segments, its two major verticals. The company had suffered a drop in its collection business, which accounts for nearly half of the revenue from the BFSI vertical.
The situation is becoming favourable for Firstsource, but at a slower pace. The company has started reporting recovery in demand in the BFSI segment. It has inked long-term contracts with a domestic and an international bank. It also expects a rampup in its healthcare division following healthcare reforms in the US, its largest market. Its management expects recovery in its telecom vertical following the phase-wise implementation of mobile number portability in the Indian market. Number portability would necessitate telecom operators to go for efficient customer verification services. The rollout of 3G services would be another trigger for the telecom segment.
Employee attrition remains a big concern. During the six months ended September 2010, Firstsource reported an attrition rate as high as 94% for its domestic operations. In the September quarter, the company lost more employees than it could recruit. This may force the management to take measures to retain employees, putting pressure on margins.
At the CMP, the stock trades at seven times its trailing 12-month earnings. Though the stock trades at levels closer to its 52-week low of . 19.5, the possibility of a sharp jump look limited since the company may take at least two more quarters to show a major turnaround in its financials.
