Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Opinion / Online-views/  Firstsource cuts guidance, but markets already knew
BackBack

Firstsource cuts guidance, but markets already knew

Firstsource cuts guidance, but markets already knew

Premium


Back-office service provider Firstsource Solutions Ltd, which had held on to its aggressive growth guidance after the June quarter results, has now drastically cut its growth outlook. It now expects the organic business to grow by about 9% this year, compared with the projection of a 17-21% growth earlier. In the second half of the year, the overall business is expected to grow at a rather tepid rate of 3% in dollar terms. The sharp drop in growth rate is partly because of currency fluctuations, adjusted for which growth would still be low at about 8%.

One of the main reasons for this is the drop in the collections business since the middle of last fiscal. Carrying out collections processes for the financial sector accounts for a large chunk of the company’s business, and the revenues and profit for this segment depend on the amount of collections the company is able to get successfully. With delinquencies rising in the US, the collections have dropped and, hence, the drop in margins for the company. Besides, Firstsource has been aggressively growing its domestic operations, especially in the telecom space. According to the company management, the lower profit margins this year reflect what it calls the “cost of growth". While capacity has been rolled out at a large scale for these new operations, revenues haven’t come in commensurately in the early stages of the project. Margins in the domestic operations should stabilize as revenues rise.

Interestingly, Firstsource shares rose by 5% on Monday after the results were announced despite the drop in margins on a year-on-year basis and the halving of its growth target for the organic business. But that’s because the markets had already factored in worse outcomes in the company’s shares. Even at current levels, the Firstsource stock has dropped by 86% from its highs in January.

Its current market captilization of Rs550 crore amounts to just 0.32 times its projected revenues of Rs1,714 crore for this year. The markets seem to be concerned about the outstanding FCCBs worth $275 million (Rs1,377.75 crore). Although they’re due only in December 2012, the company’s share price would need to rise by at least nine times from current levels in the next four years for the bond holders to convert them into shares. The high likelihood of it ending up as debt is what the markets are worried about.

Write to us at marktomarket@livemint.com

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 25 Nov 2008, 12:31 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App