Firstsource confident of repaying $180m debt over next 4yrs

BPO company Firstsource Solutions is confident of repaying loans worth USD 180 million over a period of next four years thereby decreasing its debt-to-equity and debt-to-EBITDA ratios going forward, Rajesh Subramaniam, MD and CEO told CNBC-TV18 today.

The company made its first quarterly repayment of USD 11.25 million on its outstanding debt on June 26, 2013 from internal accruals. Subramaniam said the company is required to pay USD 45 million debt every year, over the next four years.
"We are well on target to achieve that milestone… Our ability to repay the debt obligation USD 45 million this year and ensuing does not seem to be a problem," Subramaniam said. Also read: Firstsource aims to reduce debt by $45mn by FY14-end
Firstsource does not plan to raise any funds for capital expenditure, interest or loan repayment as it is confident to meet these requirements from the internal accruals. Subramaniam also sees company's debt to equity ratio to gradually reduce to 0.2 or 0.3:1 over next two-three years. He sees company’s operating profits growing from around USD 51 million to USD 70 million over the next few years, which will bring down its debt to EBITDA ratio to sub 2 level from current 4:1 level.
Following the news of successful quarterly repayment of USD 11.25 million, Firstsource shares were trading up 4.6 percent at Rs 10 on BSE at 14:48 IST.
Commenting on the stock outlook, Angel broking analyst Phani Sekhar said the Firstsource is hugely indebted and will take at least five years to repay its debts. He suggested investors to cut losses and get into larger IT company instead. Below is the verbatim transcript of Subramaniam's interview Q: First of all if you could confirm that you indeed have made this repayment of USD 11 million and this has entirely been done through cash accruals and what is the plan going forward?
A: Yes, we have repaid USD 11.25 million of our long-term debt. This is from our internal accruals. We have not taken any additional debt to repay this. Today, the company needs to repay USD 45 million of debt every year for the next four years and we are well on target to achieve that milestone. Our current cash today is about USD 22 million and cash we will build up over the next three quarters based on our improved performance. So, our ability to repay the debt obligations of USD 45 million this year and ensuing is not seem to be a problem. Q: You say you have cash at the moment of USD 22 million. You are confident that you will get accruals of USD 45 million this year?
A: Absolutely. Out of USD 45 million, we repaid USD 11 million, so that is about USD 34 million, USD 22 is already in the bank and nine months of cash accruals as the repayments happen every quarter. Q: Would you have to raise fresh loans for ongoing business?
A: Absolutely not. Any loans that we need are more short-term working capital loans, which are backed by current assets. So, we don’t need money for funding capex, for funding our interest payouts or any of the other cash items like paying tax or repaying the loans. Q: If we assume that you go as per the plan and over the next four years repay USD 180 million. What would be your net debt situation? What would be your debt-equity ratio? If you could give us some details on that?
A: Absolutely. Today, our net debt is USD 167 million, as these numbers were greater than USD 250-270 million before we repaid our Foreign Currency Convertible Bond (FCCB). These numbers will progressively reduce. Our net worth is in the excess of Rs 1,500-Rs 1,600 crore. So, our debt-equity ratios will be sub 0.8:1 comfortably and it will go down to as low as 0.2:1 or 0.3:1 over the next couple of years and the more important measure is debt earnings before interest, taxes, depreciation and amortisation (EBITDA), which was as of FY13 just about four or slightly under, will show a significantly diminishing trend to sub 2:1 over the next couple of years; with the EBITDA improving from USD 51-52 million in FY13 to our expectation is closer to about USD 70 million over next two years. Q: Will you go to the credit rating agency for a credit upgrade? Does it come on its own? Is it on its way?
A: It is on its way. CRISIL and Credit Analysis and Research (CARE) both are our credit rating agencies and a notch upgrade is I believe definitely on the cards.