Firstsource aims to reduce debt by $45mn by FY14-end

Rajesh Subramaniam, MD & CEO of Firstsource Solutions, a Mumbai-based outsourcing company is confident of reducing the company's debt by USD 45 million to USD 155 million by the end of FY14.

"The debt repayments would be USD 45 million in FY14, USD 11.25 million per quarter and our interest cost would be between Rs 16 crore and Rs 17 crore every quarter in FY14 which reduces by 6 percent on USD 45 million that we repay every year," he said in an interview to CNBC-TV18. Also Read: Glenmark: Environment challenging, see 20% growth in FY14 Meanwhile, after posting a net profit rise of 74.2 percent from a year earlier to Rs 40.2 crore in the fourth quarter, the company hopes achieve an earnings before interest, taxes, depreciation and amortization (EBITDA) of around 11.7-12 percent by next year compared to nearly 10 percent in FY13, he added. Below is the verbatim transcript of Rajesh Subramaniam’s interview on CNBC-TV18 Q: Your profit is lower despite EBITDA earning, the interest expense is the issue, how will interest expenses pan out in FY14? A: Interest expenses in FY14 post Q1 will start declining on the back of principle repayments that we will undertake from July this year. We start amortizing USD 11.25 million of payments from July, every quarter we pay USD 11.25 million on the back of that absolute interest charges will come down. However, the operating margin expansion of 150 basis point (bps) will continue going forward which will support our interest servicing and debt servicing obligations. Q: On the details of the loan repayment, how much will you repay in FY14 and what will be the accumulated interest for FY14 vis-à-vis FY13 or a quarterly tally? A: The debt repayments would be USD 45 million in FY14, USD 11.25 million per quarter and our interest cost would be between Rs 16 crore and Rs 17 crore every quarter in FY14 which reduces by 6 percent on USD 45 million that we repay every year. Q: After you repay USD 45 million, what would the debt be? A: Our net debt is about USD 200 million so after we repay about USD 45 million, our debt level would come down to about USD 155 million at the end of FY14. Q: Any plans of paring down this debt further because you have already done the repayment of foreign currency convertible bond (FCCB), are you looking at additional ways now to repay this debt as well? A: No, this debt is at a very attractive interest rate. It is a foreign currency loan that we have raised in our US subsidiary. As we build up more cash, more momentum in our cash flows, we will look at options and opportunities to pare the debt soon. _PAGEBREAK_ Q: Will it be through cash accrual, internal accruals? A: Yes, that is right. Q: So the entire loan that you are going to redeem will be through cash accruals only, you will not replace with cheaper debt at all? A: This debt is at an average interest cost of about 5.75-6 percent. It is a level, which we are comfortable with. Q: Your margins, 150 bps higher than year ago levels, you see them improving, what is the guidance for FY14? A: Yes, for FY14, my margin profile will improve. Our FY13 EBITDA is close to 10 percent and we see anywhere between 170-200 bps improvement going into next year based on some of the initiatives that we have in terms of driving profitable growth in the business. Q: Any guidance on the FY14 revenue growth? A: At this time, from the point when we start after we have taken out some of the non-profitable accounts in our businesses and as we continue to drive profitable growth, from the start point of April 1 to next year, we will be growing somewhere in the mid point of where the industry growth is. Year-on-year (Y-o-Y) the growth rates could be slightly lower given the fact that we are in the process of taking out non-profitable accounts, which also helps in margin expansion. Q: Can you give us a number? You gave us too many comparisons and benchmarks. A: On Y-o-Y basis, our target would be anywhere between Rs 2,950 crore and Rs 3,100 crore. Q: In Q4 your revenues were flat on quarter-on-quarter (Q-o-Q) basis. Did you face any kind of problems or the reason for the flat revenue performance? A: It is part of some of the actions of weeding out some of our non profitable actions that we took in the middle of last year and that has also aided in our margin expansion. The collection seasonality has also been positive but it hasn’t been to the expectations of where it should have been as per our expectations because the liquidation rates have been much slower than what we though it would be. Flat growth doesn’t worry me Q-o-Q largely because the business engines are firing well, the customers that we are working for have laid out their growth plans with us. The only issue is going to be on timing of the revenues, what has been estimated and what they translate into next year is what we are watching out for. Overall, I am extremely comfortable that the growth in our business from the starting point of where we are in April 01 will be superior and for our margin expansion, we are confident of getting to 11.7-12 percent EBITDA next year.