WNS Global Services Sep10: In-line Results : Morgan Stanley

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WNS Global Services
Sep10: In-line Results;
Maintains FY11 Guidance
Quick Comment: We do not see any near-term triggers
for WNS. Post the change in management it remains in
reorganization mode and could take a few quarters to
stabilize in our view. We expect the stock to stay range
bound over the coming quarters. EW
In-line Sep10 quarter results: WNS reported net
revenues of US$93.1m (+4.2% qoq, -7.1% yoy).
Revenues grew +2.1% qoq on constant currency terms.
Adjusted EBIT margins improved to 15.6% (+701bps
qoq, -383bps yoy). Adjusted net income of US$13.8m
(vs US$2.2m in 1Q). Price increases with Aviva,
rationalization of costs and favorable currency drove
strong margin improvement for WNS during 2Q. Mgmt
expects 12-14% margins for the full year.
Maintains FY11e guidance: WNS maintained the
upper end of its revenue and adj net income guidance
for FY11e. Revenue guidance of US$363m-378m
implies -3% to -7% yoy while adjusted net income
guidance is US$43-46m (-9% to -15% yoy).
Outlook for 3Q: Volumes in travel business could
decline qoq in 3Q due to a seasonally weak quarter.
Mgmt indicated that SG&A expenses have bottomed out
in 2Q and management expects it to move up over the
coming quarters in absolute terms as cost of new hires is
not fully reflected. A 4% rupee appreciation in 3Q would
hurt margins by 150-200bps qoq.
Conference call takeaways: 1) Sales cycle continues
to be longer than usual, 2) Management indicated that
WNS could face pricing pressure as large global players
are now actively competing even for US$5-10m deals,
3) Reorganization of sales team is complete and mgmt
expects it to start yielding results by 2H11. 4) DSO
increased to 41 in 2Q due to higher credit period for the
auto claims business. 5) Raised capex guidance for
FY11e from US$16m to US$25m due to plans to
construct a SEZ in India.