Image may be NSFW.
Clik here to view.
BPO pure play Firstsource is going great guns in the UK since its October win at Barclays (see Firstsource confirms Barclaycard contract). In Q4 ended 31 March, Firstsource’s UK revenue was up 33% to INR1.8b (£24.3m) - and up 16.5% to £83m in the year. The UK now accounts for 30% of Firstsource’s revenue, vs. 27% in FY09, and we expect this upward trend to continue as more revenue comes on stream from the Barclaycard deal in the next three quarters. The UK’s Q4 EBIT margin was stable at 29%, although in the year it dipped slightly to 29% from 32% in FY10. This is still pretty healthy and above many of its UK peers. Nonetheless, the increasing onshore presence of Firstsource in the UK could put this under pressure in 2011.
Overall, Firstsource’s Q4 revenue was up 7.8% to INR5.46b (£73.7m) and up 4.3% to INR20.5b (£271m) in the full year. Q4 pre-tax profits were up 20.3% to INR490m (9% margin vs. 8.4%), largely as a result of seasonal gains in collections and healthcare, and better performance in Asia Pacfic. In the full year pre-tax profits were up 9.3% to INR1.7b (8.5% margin vs. 8.1%).
Not everything is going swimmingly though. Its largest market the US and Canada, is on the decline, falling 4.2% in Q4 and down 2.5% in the year. Although it appears to be maintaining a good handle on its cost base, as margins went to 14% vs. 10% in FY10. Of course there is also the continuing problem with attrition, which just keeps on rising (see Firstsource’ attrition headache). In its domestic market of India, attrition now stands at an eye-popping 91% (vs. 77% in Q3) - in other words at this rate, almost the entire Indian workforce will turnover this year. If you add in the Philippines however the rate comes down to 66%. It is not so bad in the UK where attrition is slowly coming under control at 34%, compared to 35% in Q3. The company is doing a good job hiring staff though – it had a net addition of 1,553 people in the year – some 500 were taken on in the UK, and 300 in the Philippines. We just think that plugging this gap must be very distracting for management.
We recently met with Matthew Valance, Firstsource’s CEO, who told us that in India particularly, these high rates are a consequence of severe attrition in the second and third tier cities where employees are less experienced and regularly move employment. He said that at a global level Firstsource should be aiming for a 30% attrition rate. So there is clearly still a long way to go.
