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WNS (Holdings) Ltd.
Better Q2; Progress in rebuild initiatives
Operational efficiency improves; BPO sales cycle still long
WNS 2Q EBIT beat our estimates mainly due to improved productivity and op.
leverage. Rev was 1% ahead of our estimate. Lower end of FY11 rev guidance
raised from USD353m to USD363m, mainly on currency while adj net income
guidance maintained. Company's rebuild process is encouraging. We raise our
FY11-13 EPS estmts by 0-4% & PO by 5%. Sales cycle, however, remain
elongated across the industry with clients deferring decisions on fears of double
dip. Maintain Underperform rating with PO of USD10.5 at 7.2x FY12EV/EBITDA.
Improved profitability key highlight for 2Q
WNS reported modest rev growth in 2Q of 4.3% qoq (1% ahead of our est.) on
slight volume expansions in insurance, appreciation of GBP vs. USD (2.2%) and
scheduled pricing increase with top client, Aviva. EBIT of USD5.6m, ahead of our
USD1.5m estimate on rev beat, productivity and operating leverage in SG&A.
Thus, PAT at USD4.9m beat our estimate of USD0.8m. Cash conversion was
poor due to higher credit period in auto claims, but DSOs in global BPO declined.
Rebuild initiatives progress well
Re-structuring of sales organization completed with appointments at senior levels
and transition to vertical-focused structure. In-sync with its strategy of expanding
into new verticals, co. has made new hires to focus on industries like logistics,
utilities and healthcare. It is also aiming to intensify focus on transformation
capabilities and is looking to expand local delivery capability onsite.
Echoes comments about pipeline conversion delays
As noted recently by other industry participants, WNS is also seeing stretched
timelines on deal conversions. Decision making by clients appears delayed given
macro uncertainty. Opportunities in Aviva and overall pipeline is improving, but is
constituted more by early-to-middle stage opportunities. While pricing remains
stable, co. has seen industry players compete more aggressively on this front.
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