Turning around fast

While researching investment ideas over the last year or two, I was drawn to the BPO sector mainly because of the news of Firstsource Solutions buyout by Sanjeev Goenka group. 

This was a much vaunted stock once upon a time (in early 2000) when ICICI Bank was its parent. This was then the BPO arm of ICICI Infotech, the IT arm of ICICI Bank. It then renamed it as ICICI Onesource. Over the next few years, it did well enough to attract the attention of PE investors such as Sequoia and Temasek (Govt. of Singapore). Even then, it has a significant strength of 5000+ employees.

Over the next 5 years, from 2005, it prospered thru global strategic partnerships and acquisitions such as Metavante (a Fidelity arm) and Med-Assist of US. It renamed itself a FirstSource Solutions (FS) and focused on the healthcare sector thru its acquisitions. It also got listed on the Indian markets in 2007. By then, it had become one of the biggest BPO in the country with strength of nearly 15000+ employees and had diversified into other verticals such as Telecom & Media and BFSI.  Its growth continued with big deals such as USD 80 million outsourcing deal with BarclayCard US.

Post the global meltdown in 2008, FS also suffered along with its peers. It had FCCB related issues which was a big drag on the stock and rising finance costs had a huge impact on the bottom-line of the company. There were hardly any dividends paid since its IPO. 

The company has multiple delivery locations in India, USA, UK, Philippines and Sri Lanka through its various subsidiaries. Some of the services offered by the company include transaction processing, collections and receivables management, customer relationship management (CRM), claims processing, pricing and adjudication in healthcare sector, etc.

In FY2013, RP-Sanjiv Goenka Group acquired majority stake in the company (@12/share) and the company raised Rs. 274.55 crores through preferential allotment of shares to the new promoter group. Among its other investors, it has its former parent ICICI Bank with nearly 5% stake and Rakesh Jhunjunwala with nearly 4%. Along with surplus funds and with the capital received from new equity infusion, the company was able to redeem outstanding FCCB’s which were due on December 4, 2012. And with this redemption the company currently has very comfortable debt to equity.

The current market capitalization of the company is nearly Rs. 2500 crores and @38, it quotes @P/E of nearly 17. Driven by improved financial and operational performance coupled with new management, the stock price has more than tripled in the past few months. However, once the management stabilizes the company, and there are clear signs of the same, the company should start on a growth trajectory again.