India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
WNS Global Services
Dec-10 Results: No Near-
term Triggers in Sight; EW
Quick Comment: WNS reported lower-than-expected
revenue and net profit for the Dec-10 quarter. With the
UK business expected to remain muted and tax rates
expected to go up in F2012, we see limited triggers for
the stock
What's new: For the Dec-10 quarter, WNS reported
revenue of US$93mn (-0.4% qoq, -4% yoy). Gross
margin declined to 33.7% (-200bp qoq, -267bp yoy).
SG&A expenses increased 2.5% qoq, leading to
adjusted EBIT margin of 13% (-250bp qoq, -520bp yoy).
Adjusted net income of US$14.8mn (+3.8% qoq,
+32.6% yoy) was also below our expectations.
What affected revenue and margins for the quarter?
Dec-10 is a seasonally weak quarter for the travel
business segment of WNS. WNS saw improved
pricing/ramp up with Aviva, in our view, whereas the
travel segment remained weak in terms of pricing and
volumes. Lower revenues and higher wage-related
payouts dragged margins for the quarter. Rupee
appreciation of 3.5% qoq added to the margin decline.
F4Q Outlook: Management expects revenue to pick up
in 4Q. WNS management believes that it is in the final
stages of deals with two large global clients that could
boost revenue growth in F2012. Management believes
the cost of new sales people was not fully reflected in 3Q,
and it expects SG&A expenses in 4Q to move up in
absolute terms.
Our View: WNS remains in re-organization mode.
Tough conditions in the UK, a relatively new sales/
leadership team, and currency volatility have been
dragging its performance. In the absence of any material
near-term triggers, the stock could continue to languish,
in our view. We would look for signs of a revival of
revenue growth and improved execution from the
company before turning more constructive on the stock.
F2011 Guidance: Management now expects revenue of
US$367-370mn for F2012 and net profit of US$43-47mn. The
revenue guidance is slightly lower than our forecast, but the net
profit guidance remains in line at the higher end. F2011
revenue guidance implies 4Q revenue of US$92-95m (-1% to
+2% qoq).
Key Positives: 1) Management indicated that it is already
witnessing signs of a pick up in discretionary spending on the
IT side. 2) Management indicated that the pricing environment
remains rational as it has not seen undercutting by BPO
vendors. 3) Attrition rates remain flat qoq at 42.
Key Negatives: 1) Revenue growth has been muted for F2011
and remains a concern, in our view. 2) We believe new sales/
leadership team could take time to deliver on revenue growth.
Conference Call Takeaways:
1) Management believes wage inflation for F2012e will be in
8-12% range.
2) WNS should start reporting in IFRS from F1Q12 onward.
Management does not anticipate any significant impact on
financials from the shift to IFRS.
3) WNS has a total sales team of 47 people (flat qoq) and
expects to increase it further in F2012.
4) Decision-making cycle of clients remains longer than usual
at nine months.
5) Management expects F2011 capex of at US$20mn. WNS
now has debt of US$74mn and cash of US$30mn on its
balance sheet.
Company Description
WNS is a provider of offshore business process outsourcing
(BPO) services. The company runs data and voice processes
for customers, primarily located in North America and Europe,
from its low-cost delivery centers, primarily located in India.
Company management is based in India, New York, and the UK.
India Software
Industry View: In-Line
No comments:
Post a Comment