3QFY09 results below our expectations, mainly due to higher-than-expected forex loss; marginally lower EBIDTA.
Revenues for the quarter were 15% higher q-o-q in INR terms. This was on the back of Axon, which was consolidated for the full quarter as against only 15 days in the previous quarter.
Excluding Axon, revenues for the quarter de-grew on a sequential basis, we believe. In USD terms, revenues were lower by about 4.5%, in our opinion.
Excluding Enterprise Application Services (EAS) into which Axon was consolidated, USD revenues fell by about 3.6%. This was due to IT services (2/3rd) and BPO (1/3rd).
According to the management, in constant currency terms, ex-EAS revenues fell by 2% of which, 0.7% was contributed by volumes.
Existing clients continue to be the concern areas; one large account contracted q-o-q. However, new wins are making up for these.
BPO revenues disappointed and fell by 10.5% sequentially in USD terms. Business was impacted by the company’s continued focus on reducing the non-core voice business. Organic voice-based revenues fell to 6.5% of the overall BPO revenues. Including the acquisition, these were 10% of BPO revenues.
The company reported a significant forex loss of about Rs2.01 billion (Rs1.41 billion in 2QFY09) during the quarter, which was beyond our estimates. This was the main reason for the variance between our profit estimates and the actual profits.
We maintain cautious stance on sector in the backdrop of uncertain economic scenario, globally. Expect stock performance to be subdued post the recent run-up due to the above factors and despite cheap valuations.
Maintain ACCUMULATE stance despite decent upside and undemanding valuations with a price target of Rs149 (Rs171 earlier).