Firstsource Solutions, the $500-million business process outsourcing company and part of the RP-Sanjiv Goenka Group, is confident of achieving an operating profit margin of 14-15% from FY15 driven by the US healthcare market and stronger overall demand. in an interview with PP Thimmaya, Firstsource managing director and CEO Rajesh Subramaniam said the turnaround has begun with the company getting measured by its customers for generating value and not just lowering costs. Edited excerpts:
How is the turnaround playing out for Firstsource?
We are working into our clients? black box, that is, dealing with their customers. We are not in support functions but are helping them to drive revenues and create a different level of understanding about their customers.
Earlier, it was a cost play but today it is driven lot more by value. We are measured on what is our clients? customers experiences. It has moved from input management to measuring on the output.
Today, one is measured on what is the revenue that is earned by our customers or what is the revenue we protect. We are measured on metrics like net promoter score, customer satisfaction, retaining customers. We are being embedded in the overall strategy of our customers. For example, my top customer was $1 million in 2002 and today it is $100 million. This has been part of our turnaround and this transition is helping.
How are business verticals performing for Firstsource?
We are closely embedded with our clients with all their customer-facing functions, which are all retail businesses. We are feeling extremely good about healthcare and know exactly how much investments are needed. The collections business in financial services and Indian domestic business is stressed, which is about $100 million, but the other $400 million, comprising of healthcare, telecom and media, will drive growth. This has been part of our turnaround after the FCCB issue, where in the first year we emerged with consolidation and in the second we shrunk by getting rid of unprofitable clients.
From the fourth quarter of FY14, we will see a different trajectory. We will end FY14 with a operating margin of 12-12.2%. From FY15, we expect to be in the 14-15% Ebitda margin range.
How will Ebitda margins improve for the company?
The Ebitda margins will expand by another 200 basis points and we have enough runway. We have a lot of levers here to increase margins, which will be lot of offshore growth coming back, healthcare is doing well, there will be investments in sales and marketing. We still have some efficiencies to drive in some of our internal metrics.
Will Firstsource expand into newer business verticals?
We will go deeper into the existing segments. In healthcare we will look to improving our wallet share and go deeper. In the media segment, we are end-to-end largely with our UK customers and look for adjacent businesses. As customers grow, we will also grow. Our customer management services around media, financial services, healthcare, telecom are going to be hugely profitable.
Is Firstsource looking to expand into newer geographies?
From customer perspective it will be the US and UK markets. From a delivery perspective, we could be expanding to new territories based on feedback from our customers. In Philippines, for example, we are there in Manila but are expanding into Cebu due to client expansion.
Another client is exploring option of South Africa, there are many others like those. What we will not do is to set up the centre ourselves and figure out what to do. Rather, our customer will take us to the geography. The only question is how we scale and get the right talent.
What will be the three-year roadmap for Firstsource?
The vision is for our top 10 customers. I would like to see them double in the next three years. This will be through deepening of relationships and gaining the wallet share. We will create organisational structure to get the right rhythm. When we were in trouble with FCCBs, our customers stayed with us because of the impact we make for them. Now it is just validation. We are not caught up too much with large numbers but would like a profitable growth with healthy returns on the investments.
