Indias WNS has risen rapidly to prominence as a UK- and US-focused business process outsourcing (BPO) player heavily involved in the travel and insurance markets. However, reduced business volumes in both these industries threaten to halt growth in 2010. Diversification into new industry verticals and service offerings is going to be key to WNS riding out the economic downturn.
WNS Global Services reported growth of 32.9 per cent for the year ended 31 March 2009, pushing its annual revenues to US$386 million. Most of this new revenue came from the acquisition of Avivas back office and the related $1 billion, eight-year deal. Excluding all acquisitions and accounting for currency fluctuations, WNSs organic revenue growth was only 5.5 per cent.
The Aviva acquisition doubled the size of WNSs banking and insurance sector business now its largest vertical but its second largest, the travel sector, shrank by 2 per cent. While there was strong growth (21 per cent) from the emerging services business unit, this was cancelled out by a 21 per cent decline in revenues from industrial and infrastructure clients.
WNSs management doesnt see much improvement ahead either, forecasting flat revenue growth at best for the coming year if the USD/GBP rate stays between 1.4 and 1.45. On the positive side, profitability is expected to improve. Staff attrition is falling and competition in the Indian labour market is cooling. WNS also has the opportunity to further reduce costs ahead by integrating acquisitions made in 2008, such as Aviva and Call 24/7.
Operating margins before tax currently stand at only 3 per cent. However, net income, adjusted to exclude share-based compensation, related fringe benefit taxes and amortisation of intangible assets, was 12 per cent, and is forecast to reach around 13 per cent in 2010.
BPO not always counter-recessionary
WNS has faced significant headwinds in terms of currency fluctuations holding back growth. This is an ongoing issue affecting offshore players across the industry. The depreciation of both the dollar and the pound versus the rupee over the year will have hurt WNS particularly badly given that 62 per cent of revenues are paid in British pounds, and it reports its results in dollars.
However, currency is only part of the problem. WNS is also heavily involved in BPO services that are particularly prone to the credit crunch. Thanks partly to Aviva, insurance processing represents more than 45 per cent of WNSs business. Alongside this, WNS is also heavily involved in travel sector services thanks to its origins as British Airways offshore back-office operation. All in, three-quarters of WNSs business comes from these two sectors, where volumes of business have been affected by lower consumer spending.
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