Business process outsourcing firm Firstsource reported revenues of Rs 1,464 crore for the nine months ended December 2009, an increase of 14.6% over the corresponding period of the previous year. The company says it is not expecting a quick business up-tick from the US market. Ananda Mukerji, MD & CEO, in an exclusive interaction with FE’s Rachana Khanzode, says the company is banking on the telecom and media verticals for short-term growth. The BFSI (banking financial services and insurance) and healthcare spaces, he says, would continue to see subdued volumes as also pricing pressure in the few coming quarters. With the UK government issuing more licences for banks, Mukerji is looking forward to more business from the BFSI sector in this geography.
What is the business outlook for coming quarters?
During the third quarter, we have seen the maximum growth coming from the telecom and media verticals, of around 40% of the revenues. Going ahead, we expect increased volumes since clients are reducing the number of vendors that they outsource to. Moreover, we can cater to clients who require support for complex services and devices in the telecom space. We might see some price cuts across verticals though most of it has already happened. However, the volume growth in telecom and media spaces would mitigate the pricing impact. However,
volumes from the BFSI and healthcare segments, which contribute 22% and 37%, respectively, would remain under pressure.
When will Firstsource see more volumes from the BFSI space?
For us, the BFSI space in the US market is dull in terms of business volumes. However, 50% of our BFSI business is derived from what we call the ‘collections’ segment and that continues to do well. However, the real growth will only come when banks start lending through credit, loans and mortgages. These firms are still going through regulatory changes and system reconfiguration led by mergers & acquisitions. These do not really give us volume growth. We expect the recovery period to be about the second half of 2011.
At the same time, we are banking on the UK market that is expected to see several new banks. The UK government/ FSA is actively encouraging new entrants (at least three) and about 10 new banking licence applications have been put forward with FSA as far as our information goes. Some of these are Metro Bank, Home & Savings Bank and Albion Bank. Some new entrants could result due to spin-offs from existing banks such as LBG-Project Verde, RBS-Williams & Glyn’s and Northern Rock. We also expect Virgin Money, Tesco Bank and Post Office to expand.
When do you expect the US healthcare reform Bill to be passed and do you see any major impact of the delay?
Considering the current situation, we expect the healthcare reform Bill might get scaled down further. But, we are not counting on any major impact of the Bill for the next three to four years. However, the Bill will change the business models of the payers (firms that provide insurance) and providers (hospitals, doctors, physicians) and, therefore, they want to wait and watch for some clarity. This, however, is delaying the decision process for payers and some providers. We expect the clarity to come any time between summer and autumn this year. A number of ramp ups are then bound to happen.
What is your take on the India market?
We see India as one of the fastest growing markets due to the lower base. Our India business will stabilise at levels of about 14-15% of revenues, from the current levels of 12.7%. We intend to replicate the India model in other countries like those in south-east Asia, China and Brazil though there is nothing on the drawing board as of now. We have been focusing on the BFSI, retail and telecom verticals in India. Though telecos have been early to outsource, banks are lagging them. With the Indian telecom market under pressure, we see volumes to be subdued as of now.
