Indian energy conglomerate RP-Sanjiv Goenka Group (RP) is now the majority shareholder of BPO pure play Firstsource (see Indian energy conglomerate seeking Firstsource buy) with c57% of the business today. RP chairman Sanjiv Goenka is now also the chair of Firstsource.
The new ownership coincided with markedly improved results for Firstsource in the third quarter ended 31 December versus this time last year (see Firstsource takes further hit on margins). Q313 revenue shot up 23.6% to Rs 7.13bn (£84.9m), although this was flat quarter on quarter (qoq). EBIT profits meanwhile were up 155.5% to Rs 513m (£6.1m), and up 13.5% qoq. This pushed the EBIT margin to 7.2% vs. 3.5% last time. The same good news for the nine month period showed revenue up 29% and EBIT profits doubling. This drove the nine month margin up to 6.2% vs. 3.9% last time.
We suspect a lot of this margin expansion has been down to headcount reduction. In Q313, Firstsource saw headcount fall by 463 employees, compared to net addition of 830 employees in Q312. Headcount can vary for BPO providers depending on contract demand and of course improved process efficiencies within the clients' business.
Geographically, the UK continues to grow. UK share of revenues now stand at 35% vs. 32% this time last year. This will have been helped by the opening of a new 600 seat customer contact centre in Cardiff last June, from where it now provides services to broadcaster Sky TV. While the UK business appears to be on the rise, the US business is in fact declining and now accounts for 45% of Firstsource’s business vs. 51% this time last year.
Firstsource shouldn't be seeing such declines in the largest BPO market worldwide, so clearly something needs to be done to turn that around. Another big challenge we see is margin pressure as more work is done onshore. Controlling headcount while growing margins and revenue is a difficult balancing act - nonetheless, these results are a step in the right direction.