WNS snips net income guidance by 60%

SUBPRIME WOES

With its major US-based client First Magnus Financial Corporation laying off 99 per cent of its employees and discontinuing its outsourcing work with the firm, Mumbai-based business process outsourcing (BPO) firm, WNS (Holdings), has revised its net income guidance downward by 60 per cent.

In its earlier guidance, the New York Stock Exchange (NYSE)-listed firm said its revenue would range between $302 and $307 million for the financial year 2008, and net income between $41 and $43 million.

The company's revenues less repair payments is now expected to be between $286 million and $291 million for the year ended March 31, 2008 "" about $16 million lower then what it had announced.

The net income before tax is expected to be around $17 million "" about $26 million lower than previously estimated, of which about $16 million is the potential write-off in respect of intangibles (around $7 million) and goodwill ($9 million).

Post the announcement, WNS dropped to the lowest price since the company's initial public offering (IPO) in July 2006.

WNS's American Depositary Receipts (ADRs) fell $4.05, or17per cent,to $20.45 in NYSE composite trading.

Banking, financial services and insurance (BFSI) segment accounts for around 34 per cent of WNS' revenue. Around 22 per cent comes from insurance, 9 per cent from mortage (from 9 customers "" First Magnus being the biggest) and 3 per cent from the rest.

The company has also stated that in subsequent years, the loss of the First Magnus Financial Corporation and other mortgage businesses is expected to result in their revenues less repair payments being lower by approximately $20 million per annum and the net income before tax being lower by approximately $4 million per annum.

Since the company wholly sub-contracts the repairs from its Auto Claims division to the repair centres, it evaluates its financial performance based on revenue less repair payments to third-party repair centres (a non-GAAP measure).

Meanwhile, the company in its conference call said it "is working on ways to redeploy the team that works in its mortgage business segment".

The team members, mostly based in Gurgaon (Delhi), work in call centres, data analytics (simple and complex tasks), and IT-related work. They will, in all likelihood, be deployed across verticals within the company.

"We will also look for additional areas to cut costs to mitigate the negative impact vs our earlier guidance," said a company spokesperson.

J P Morgan has downgraded WNS Holdings to neutral from overweight, citing the company's uncertain revenue and margin outlook and potential near-term credibility issues.