Deal with Barclays, Axis Bk to reflect in Q3-4: Firstsource

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Deal with Barclays, Axis Bk to reflect in Q3-4: Firstsource

Mathew Vallance, MD & CEO, Firstsource Solutions, in an interview with CNBC-TV18’s Kritika Saxena, spoke about the results and his outlook for the company.

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Firstsource Solutions has declared its second quarter results for FY11. The company's consolidated net profit was up at Rs 33.2 crore versus Rs 32.1 crore QoQ. Its consolidated revenue was up at Rs 490 crore versus Rs 475.9 crore QoQ.

On the sidelines of the CNBC-TV18 CFO awards ceremony, Mathew Vallance, MD & CEO, Firstsource Solutions, spoke to CNBC-TV18's Kritika Saxena about the results and his outlook for the company.

Below is a verbatim transcript of his interview. Also watch the accompanying video.

Q: Run us through the highlights of this quarter - how has it been in terms of revenue growth, verticals and geography performance?

A: We have had a steady performance over the quarter. Our revenues have expanded on a QoQ basis by 2% to Rs 503 crore. Our operating EBIT has also expanded by 30 basis points so we clocked Rs 49 crore of operating EBIT. We have seen steady progress across the verticals but particularly in the BFSI segment, we have seen a good amount of traction there although we have not really seen it materialize into our financial performance yet.

We just recently signed a deal with Barclays Card in the UK which is a sizeable five-year outsourcing contract. Also, in India we have signed a deal with Axis Bank . On the financial services side we are seeing some good progress there.

Q: Since you mentioned Barclays Card and Axis Bank can you tell us how large are these deals and by when would we see the revenues from these deals flowing into the company?

A: I can't give specific sizing of the deals but they are material. The Barclays deal, especially in terms of size will start to show up in our financials in the third and fourth quarter. We are already starting our project with Axis Bank, so we will start seeing the results come through in the second half of this fiscal year.

Q: How have the margins been this quarter vis-à-vis last quarter and are they finally looking stable right now with perspective for the next couple of quarters?

A: The operating margins grew by 30 basis points from the last quarter. As the year progresses we will see improvement particularly as we move into the fourth quarter where we do not have a seasonal strong quarter. The new deals we signed will flow into the fourth quarter. You will see margin expansion particularly towards the end of the year.

Q: You have sold about 51% of your holding in Pipal Research Holding to Crisil - so can you give us an idea about the exact amount that you will be deriving from this transaction and by when will that be taken into the P/L account?

A: We signed an agreement with Crisil to sell our stake in Pipal. That will show in our accounts in the third quarter assuming that the deal closes with the pace we expect it to. The overall deal size is USD 12.75 million. We have 51% of the proceeds of that deal.

Q: What is the debt on charts right now and what percentage of that has been retired so far?

A: Our primary principle debt is the FCCB. It is a convertible bond. We do not see it converting but we do see it as debt. We have certain amount of other debts at the moment but we have significant cash balances which are accruing on a QoQ basis.

The way we look at the FCCB is that when it matures in December 2012, assuming it does not convert, which we do not think it will, then we will need to re-finance at that point about USD 150 million. We think it will be relatively easy to do that at that point in time.

Q: Any specific fundraising plans aside from the ones that you have outlined right now?

A: We clearly look at options around our debt structure at any point in time. We may or may not restructure the debt we currently have. If we keep things as they are and let it run until December 2012, we are in a comfortable position to re-finance at that point and so that is what we have decided to do.