Following recent turbulence and declines in profitability (see WNS pulling in different directions), offshore BPS pure play WNS appears to be on a more stable footing after a better third quarter.
The adjusted net margin held up at 12.3% vs. 12.5% last time, and was up on 11.4% the previous quarter. Net revenues (i.e. less repair payments to partners) were up 16.8% to $113.5m and up 5.8% sequentially. We suspect the majority of this was organic, so a much better performance overall. The revenue uplift allowed WNS to increase guidance for FY12/13 of between $437m and $439m (c11% up on last year) (less repair payments), and an adjusted net margin of between 11.9% and 12.3%.
WNS added 9 new clients in the quarter, and expanded 8 existing relationships within the retail & CPG, insurance, utilities and travel verticals. There were several new project started, which also helped push up ‘transition revenues’ by $2m vs. last quarter and Q311. WNS pointed out that transition work typically carries lower margins, as they include start-up costs associated with travel and training. So in theory margins on new business should improve as the engagements move into steady-state.
The challenges facing WNS however are bigger than that. As a mid-sized player, it lacks the scale and breadth of capability of larger competitors like Genpact, other Indian-HQ'd and global IT/BP giants. CE Keshav Murugesh realises that WNS needs to invest in geographic expansion, domain expertise, new service offerings and technology-enablement in order to compete effectively. This has already brought down the operating margin several points over the past year, and with more investment on the horizon profitability will remain under pressure in 2013.