Firstsource net falls 67%, hurt by staff costs

Firstsource net falls 67%, hurt by staff costs

Mumbai: Firstsource Solutions Ltd on Wednesday posted sharp 67% fall in June quarter net profit, impacted by weakness in the business process outsourcing space and a large employee rampup which raised staff costs.

The company has raised $180 million in long-term loans from a consortium of financial institutions to lower interest costs, it said.

A clutch of factors -- softness in volumes in telecom and media businesses due to client reductions as well as business from existing clients, employee ramp, impact of cyclicality on collections business-- impacted the net profit, its managing director and chief executive officer Matthew Vallance said in a conference call on Wednesday.

“On the back of a very strong Q4, we saw sequential decline in net profit in rupee terms of 4.3%, and we normally see reductions in volumes as we move from Q4 into Q1. But this year it’s been more pronounced than usual on account of a number of factors," he added.

Earlier in the day, the Mumbai-based firm reported a net profit of Rs106.5 million for April-June quarter.

“Another fact worth mentioning is the recruitment scene in our Asia-Pacific unit, which added about 25% (more) or 3,000 staff during the course of Q1," Vallance said.

Firstsource’s total employee strength stood at 29,664 as of 30 June.

Staff costs jumped 15.4% to Rs346 crore.

Most mid-cap IT companies were set for a squeeze in margins for the April-June quarter brought about by wage hikes and higher taxes.

Fund Raising

Firstsource Solutions, which has a present net debt of $240 million, has raised a $180 million overseas loan from a consortium of six financial institutions.

The lenders include overseas branches of Axis Bank, Canara Bank, ICICI Bank and Indian Overseas Bank, GE Capital of US and DBS Bank. Kotak Mahindra Bank, ICICI Bank and Canara Bank were the lead managers, it said in a statement.

The interest rate of the new term loan is lower than the current interest rate on existing loans, Vallance said, but did not elaborate.

The proceeds will be used to refinance an existing external commercial borrowing and term loan of $64 million and the remaining will be used for a FCCB redemption obligation in December 2012, it said in a statement.

At 2.23 pm, shares of the company were trading lower by 1.21% at Rs16.35 a share in a weak Mumbai stock market.