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Strong Third Quarter for Firstsource As it Continues to Realign its Portfolio

Firstsource has just announced its strongest quarter since FY 2013. Revenue was up 12.1% y/y to Rs. 7,998m (~$128m) and margins increased 210 bps y/y to 9.3%. The margin improvement is due in part to Firstsource’s consolidation of unprofitable accounts in both its customer management business and in domestic accounts in India and Sri Lanka.

Telecoms and media, Firstsource’s dominant sector (44% of revenues this quarter, around $56m), was the slowest growing vertical. The fastest growing was healthcare, with 15.8% y/y growth to ~$41m. This vertical was a contributor to the 17% growth in the U.S. Growth in the U.K. (15.3%) has been fuelled by the BFSI sector.

Attrition has decreased considerably in offshore centers in India and the Philippines (49.2% from 57.3% in Q2 FY 2014) and especially in onshore centers in the U.S. and Europe (33.8% from 47.4% in Q2 FY 2014); although these figures are still dramatically higher than its European and U.S. based peers. Attrition in its domestic serving centers continues to be a concern (92.8% from 85.6% in Q2 FY 2014).

Guidance for full FY 2014 remains upbeat:

  • Moderate revenue growth fuelled by expansions from current customer management contracts, continued growth in the healthcare vertical and expected ramp up in BFSI collections
  • Operating margin expansion of 150 to 200 bps, due to ongoing consolidations of low margin accounts, increasing efficiencies across business units, growth in offshore delivery and increasing collections business in Q4. 

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