WNS : In-line 2Q and outlook confirm improved growth prospects; Goldman Sachs,

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WNS (Holdings) Ltd. (WNS)
Neutral Equity Research
In-line 2Q and outlook confirm improved growth prospects; Neutral
What's changed
WNS reported September-quarter operating results that were largely in
line with expectations. Management updated its FY12 revenue guidance
slightly to $388-$404 mn (+5%-9% yoy) vs. $387-$407 mn previously.
Guidance for adjusted net income was also relatively unchanged at $44-
$47 mn ($43-$47 mn prior). Organic revenue growth for the quarter
finished at +5.3% yoy, above our 3.3% estimate, while the adjusted
operating margin of 15.4% was a touch lower than our forecast (-30 bp) on
a comparable basis. We raise our FY12/FY13/FY14 adjusted EPS (excluding
amortization and stock comp) modestly to $1.00/$1.12/$1.21
($0.99/$1.10/$1.21 prior) reflecting reported results and updated currency
assumptions. Our 12-month price target of $11 remains unchanged.
Implications
We maintain our Neutral rating, as we believe WNS’s growth profile will
continue to trail its offshore BPO peers in the near to medium term. That
said, 2Q results confirm that its organic revenue has turned the corner
given two consecutive quarters of positive growth, and its business has
stabilized given improving margins, operating metrics, and free cash flow.
In addition, we view the company’s recently filed shelf-registration as a
positive step toward increasing its free float, as we believe that low trading
liquidity and associated risks have been one of the investing deterrents for
existing and new shareholders since WNS’s IPO.
Valuation
Our 12-month price target of $11 is based on a weighted average model
incorporating our sector relative Investment Framework, CY12E P/E, CY12E
EV/EBITDA, and an M&A value; it implies a CY12 P/E of 10.1X our adjusted
EPS of $1.09 (+4% yoy).
Key risks
Downside: (1) Lower revenue growth and margins. Upside: (1) Higher
revenue growth and margins. (2) M&A.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral

Goldman Sachs, WNS (Holdings) L: 1Q better, outlook intact; operating metrics improved

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WNS (Holdings) Ltd. (WNS) $9.31
   Equity Research
First Take: 1Q better, outlook intact; operating metrics improved
News
WNS reported 1QFY12 net revenue of $97.8 mn (+9.6% yoy; +3.7% qoq),
above our and consensus estimates of $94.1 mn and $94.4 mn,
respectively. GAAP EPS was $0.01, $0.01 above our estimate of $0.00;
excluding stock comp and amortization, adjusted EPS was $0.22 vs. our
and consensus estimates of $0.20 and $0.20, respectively. Note that WNS
has adopted and is reporting financial results under IFRS, while our
previous estimates (and likely the consensus) were based on US GAAP.
For FY2012, WNS’s revised guidance calls for net revenues of $387-
$407 mn (+5%-10% yoy) vs. previous $383-$407 mn. Guidance for adjusted
net income remains unchanged at $43-$47 mn. These compare to our and
consensus estimates of $393 mn (+6% yoy) and $396 mn (+7% yoy) for net
revenue, and $46.2 mn and $45.7 mn for adjusted net income, respectively.
Analysis
1QFY12 headcount finished at 21,808 (+1.9% yoy; +1.3% qoq) vs. our
estimate of 21,973. Employee attrition was reported at 41%, down from
43% in the March-quarter. Billed DSO were 39 days, down from 44 days in
the March-quarter. FCF was -$4.4 mn, slightly below our -$2.7 mn estimate.
WNS noted in the press release that it signed 6 new clients in 1Q.
Implications
Better than expected 1Q results and an intact FY12 outlook, coupled with
growing headcount (albeit only modestly) and improved employee
attrition, suggest improved execution and that WNS’ business has largely
stabilized. That said, we believe the company’s growth profile will likely
continue to trail the industry and its offshore BPO peers through CY2012.
Our price target and estimates are unchanged. We will learn more details
on management’s conference call this morning.
INVESTMENT LIST MEMBERSHIP
Americas Sell List
 
 
Coverage View:  Attractive

Goldman Sachs:: WNS: Revenue trend improving, but operating metrics remain weak; Sell

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WNS (Holdings) Ltd. (WNS)
Sell Equity Research
Revenue trend improving, but operating metrics remain weak; Sell
What's changed
We are updating our estimates post 4Q results. For FY2012, we trim our
adjusted EPS (ex. stock comp and amortization) by $0.03 to $1.01 (flat yoy)
reflecting higher revenue (+0.6%) and margin (+60 bp) assumptions, offset
by higher taxes (+$8 mn). For FY2013, we trim our adjusted EPS by $0.03 to
$1.12 (+11% yoy) reflecting similar changes. Our FY2012/FY2013 GAAP EPS
now stand at $0.20/$0.32 ($0.22/$0.35 prior). We introduce a FY2014
adjusted EPS of $1.26 (+12% yoy) and GAAP EPS of $0.46. We maintain our
12-month price target of $10 given limited adjusted EPS changes.

Morgan Stanley: WNS - Dec-10 Results: No Near- term Triggers in Sight; EW

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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  

Goldman Sachs on WNS:: 3Q operating results weaker, FY11 outlook intact; Sell

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WNS (Holdings) Ltd. (WNS) $11.85 
   Equity Research
First Take: 3Q operating results weaker, FY11 outlook intact; Sell 
News
WNS reported 3QFY11 net revenue of $92.7 mn (-4% yoy; -0.4% qoq),
below our and consensus estimate of $94.5 mn and $93.2 mn respectively.
GAAP EPS finished at $0.13 vs. our estimate of $0.09; excluding stock
comp and amortization, adjusted EPS was 0.33, $0.03 above our and
consensus estimate of $0.30, with variance from lower revenue and
margins offset by lower SG&A costs, higher “other” income, and a lower
tax rate.

Goldman Sachs: India IT: WNS Holdings (WNS, Sell)

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WNS Holdings (WNS, Sell, $12.76)
 Repositioning the company to grow existing relationships – Management indicated
that, historically, one of the biggest challenges for WNS is the ability to expand
business relationship with existing clients, given a horizontally focused model. As such,
in 2010 the company has worked aggressively in creating a vertically focused
organization, with horizontals supporting the verticals.

WNS - Better Q2; Progress in rebuild initiatives:: BofA ML

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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.

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.

WNS - Profit stabilization alleviates concern, but growth still muted; Sell - Goldman Sachs

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COMPANY UPDATE
WNS (Holdings) Ltd. (WNS)
Sell
Profit stabilization alleviates concern, but growth still muted; Sell
What's changed
We are adjusting our estimates following reported 2Q results. For FY11, we
raise our adjusted EPS (excluding stock comp and amortization) by 5% to
$0.97 on higher margin assumptions. For FY12/FY13, our adjusted EPS go to
$1.05/$1.16 ($1.02/$1.10 prior) reflecting higher margin assumptions. Our
FY11/FY12/FY13 GAAP EPS now stand at $0.17/$0.22/$0.35 ($0.03/$0.13/$0.22
prior), with the larger GAAP revisions driven by lower stock comp expense, as
the company implements its move towards a more variable, cash-based
compensation structure. Our revenue forecast remains largely unchanged for
all periods. Reflecting our revised estimates, we raise our 12-month price
target to $10 ($9 prior), suggesting 6% downside.
Implications
Profit stabilization driven by a positive turn in revenue growth (+2%
organic qoq) and sequential margin recovery (+420 bp ex. FX) provide
some comfort that WNS’ earnings profile has stabilized, following three
consecutive quarters of qoq decline in revenue and operating profit.
However, we maintain our Sell rating and expect continued share
underperformance given: (1) despite 2Q earnings upside, a largely
unchanged outlook implies that profit growth will remain muted on a yoy
basis and trail its comparable group through the rest of this year; (2) we
believe recent investments to reinvigorating the salesforce, while positive
for long-term revenue prospects, will slow the pace of margin recovery in
the near term; (3) operating metrics including headcount growth (flat qoq)
and attrition (42%) remain weak and continue to lag industry peers.
Valuation
Our 12-month price target of $10 is based on a weighted average model
that incorporates a sector-relative Investment Framework, CY11 P/E, CY11
EV/EBITDA, and an M&A value; it implies a CY11 P/E of 9.3X adjusted EPS.
Key risks
Higher volume growth, pricing, and/or operating leverage and M&A.