Rupee depreciation benefit to play out in Q3: Firstsource

Firstsource Solutions is witnessing recovery in the UA and UK markets for the verticals in which it operates, MD & CEO Rajesh Subramaniam said.  "There is excellent recovery in growth in market segments like financial services in the UK and in telecom and media in Europe as a whole," he told CNBC-TV18 in an interview.

He further added that the benefits of rupee depreciation will start playing out from Q3 onwards and the company is in a good position as far as loan repayments are concerned, he added. Also Read: Sun Pharma at new high; hopes of higher sales in key drug Below is the verbatim transcript of Rajesh Subramaniam's interview on CNBC-TV18 Q: What to understand how markets such as the US and Europe are doing considering that we have seen a lot of good macro data coming out from there, has there been a formidable recovery may be on a sequential basis for you? A: The markets in the US and UK are showing recovery in the verticals that we play in. We are very bullish on the healthcare segment which is predicated on the US markets and we are seeing an excellent recovery in growth in the market segments, in financial services in the UK and in telecom and media in Europe as a whole. In the vertical segments we play in and in the markets where our customers are. We are very optimistic of our future prospects. Q: This quarter was very volatile in terms of the rupee moves, we had that big move towards Rs 68, now we have seen a retreat back to Rs 62. How do you think that will play out in terms of numbers? In this kind of volatility what would companies like yours do? A: There are two elements to it, one is on our receivables book - our policy of hedging is on a rolling 12-18 month basis, so the benefit of rupee depreciation that we have seen will start accruing to us from Q3 onwards, extending into a good part of next year. Now the other element is depreciating rupee helps us much better leverage in pricing of deals and gives us much more degrees of freedom in terms of how we drive operating leverages in the current environment and lock in those rates with new deals that we pursue in the markets. The third element to it is on my loan book which is we have a foreign currency loan in our US books but given that more than 68 percent of our business and free cash flows are derived abroad there is no impact for us because I have cash flows generated abroad to service the loan repayments and the open position in our covers in India ensures that the money which India needs to send to service some of these repayments is hedged naturally. So we are in a good space as far as loan repayments are concerned and the benefits of the rupee depreciation will start playing out from Q3 this year onwards extending well into next year. Q: What will your balance sheet look like by the end of the year? A: The key element of our balance sheet is our loan book so our net debt was about USD 166 million end of Q1, we have USD 11.25 million repayment coming up end of this month which we will repay. Our cash balance was about Rs 150 crore end of Q1. We will aim to maintain it at the same level end of Q2 which signifies that free cash flow generation is in excess of USD 10-11 million per quarter. Q: In terms of project pipeline how is that shaping up? A: Predicated on the recovery we are seeing in the healthcare segment, the financials services segment in the UK, our pipeline is robust, the core offshoring is coming back very strongly, some of the deals that we are in pursuit of and some of the deals we have signed will start seeing the benefits of growth coming in from Q4, extending into full part of next year. So the pipeline is strong, the healthcare vertical is doing extremely well and we are very bullish about the financials services segment especially in the UK where we are seeing significant traction at this point.