Mumbai: Firstsource Solutions Ltd, a business process outsourcing (BPO) company, posted a consolidated profit after tax of 35.9 crore for the September quarter, a 24% sequential increase and a 67.5% rise from 21.5 crore a year ago.

Revenue rose to 717.6 crore, up 34.6% from a year ago and 6.3% sequentially, according to a Friday release.

“Our second-quarter results reflect strong operational performance as we continue to stay focused on profitable growth," said Rajesh Subramaniam, chief executive officer and managing director.

Firstsource said it raised $275 million in November 2007 through foreign currency convertible bonds, or FCCBs. Bondholders can either convert their bonds to equity or redeem them on 4 December.

Up to 30 September, the total amount of FCCBs repurchased and cancelled was $105.2 million and the nominal amount of bonds as on that date was $169.8 million. The company had 777.8 crore in cash at the end of September, according to the release.

Kolkata-based CESC Ltd, the RP-Sanjiv Goenka group’s flagship electricity generation and distribution firm, said on Thursday it planned to acquire a controlling stake in the Mumbai-based BPO for up to 640 crore in cash. The group has agreed to pick up at least a 34.5% stake in Firstsource, which will make it the single largest shareholder, and help the BPO reduce debt.

In the September quarter, Firstsource derived 45% of its revenue from the US, 35% from the UK and 20% from the rest of the world including India. Its telecom and media practice contributed to 44% of revenue, healthcare 31% and banking, financial services and insurance (BFSI) 24%.

Firstsource’s offshore business (India and the Philippines) as a percentage of the total dropped to 55.9% from 63.9% in the preceding quarter, while that of its onshore business (the US and Europe) improved to 45.2% from 38.9%. Its domestic business (India and Sri Lanka) fell to 89.7% from 97.0% in the June quarter.

Firstsource fell 13.34% to 12.34 on Friday on BSE, with investors disappointed about the pricing of the open offer for the company’s shares—CESC said on Thursday it would acquire a 26% stake in the company at 12.20 a share.

Investors also dumped CESC’s stock on Friday, resulting in a 15% fall in its market price a day after the RP-Sanjiv Goenka group announced its acquisition of Firstsource.

Money for the purchase is to come from CESC’s cash reserve, according to Sanjiv Goenka, chairman of the RP-Sanjiv Goenka group.

CESC’s shares lost 15.32% to close at 281.15 each on BSE. The sharp fall was accompanied by high volume: on BSE, 2.19 million CESC shares changed hands as against a trailing two-week average trading volume of 264,000 shares a day. On the National Stock Exchange, 10.48 million shares were traded.

Not impressed with CESC’s investment in an unrelated business, several broking firms downgraded the stock. Some of them, such as Spark Capital Advisers , said the stock might fall further.

Spark Capital said in a report that CESC’s cash position “will likely drop alarmingly" by the end of the next fiscal year, making it dependent on external funding for its power projects under commissioning.

The company is currently pursuing at least power projects of 600 MW each, one in Maharashtra and the other in West Bengal.

CESC needs around 800 crore for these two projects, according to Koushik Vasudevan, an analyst at Elara Capital (India) Pvt. Ltd. That apart, Spencer’s Retail Ltd—CESC’s arm that runs superstores—could need around 400 crore over the next two years to fund operating losses and to repay debts, he added.

Considering CESC’s cash needs for its existing businesses, investors are not convinced about the timing of the Firstsource deal, Vasudevan said.

A director at CESC, however, said the company will invest only 400-500 crore on Firstsource. “It isn’t a very big sum considering our annual cash flow of 1,000-1,100 crore from our power business," he said, asking not to be named. Goenka, who is travelling, wasn’t available for comments on Friday.

Spark Capital’s report also said that the infusion of 275 crore that CESC has committed is “unlikely to improve Firstsource’s debt-laden financials significantly". The BPO firm, according to Spark Capital, will have a net debt of around 1,500 even after the capital infusion.

On Thursday, Goenka had said that CESC’s power projects were facing extraordinary delays because of difficulties in acquiring land and in securing coal linkage, and that McKinsey and Co., a consultancy, had advised it to diversify into other sectors such as BPO. Firstsource is attractively priced at this time and has impressive growth prospects, he added.

Investors were also possibly rattled by Goenka’s admission that CESC was unable to expand its power business at a satisfactory pace, said an independent stock analyst, who did not want to be identified.

A lot of people invested in CESC’s shares because the company has one of the healthiest debt-equity ratios in the sector—1.1:1—and it always had access to coal, he said. But it is now being re-rated in the light of what Goenka said on Thursday.

Manish Basu in Kolkata contributed to this story.

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