Despite the tremendous promise of the BPO sector, E-serve’s income and profits are stagnating for the last three quarters.
Deriving bulk of the income from the Citigroup entities worldwide, E-serve registered a 56 per cent growth in income from operations at Rs 58.93crore (Rs 37.78 crore) over the same quarter last year.
Of late the company claims to have been reducing its dependence on the Citigroup for its business and is on the look out for business from outside the group. This is surprising because Citigroup itself has much larger outsourcing needs. At Rs 46.05 crore the operational costs were up 53 per cent over the corresponding quarter cost of Rs 30.10 crore with each of the components of operational costs (staff cost, premises, rental and other expenditure) going up by 53 per cent each.
The company was able to improve its margins reasonably with operating profits moving up by 68 per cent to Rs 12.88 crore against Rs 7.68 crore during the same period last year.
OPM at 22 per cent was slightly above the 20 per cent it recorded during the previous corresponding period. A 162 per cent rise in the pre-tax profits saw tax provisioning (including the deferred tax provision) swell by 162 per cent to Rs 9.26 crore against Rs 3.54 crore despite which net profits registered a growth of 203 per cent to Rs 5.57 crore against Rs 1.84 crore during the previous corresponding period.
E-serve’s sequential performance has been stagnant. Operational income was 1 per cent below Rs 59.64 crore recorded during the March quarter.
On the other hand the operational costs having gone up by 1 per cent sliced operating profits by 9 per cent over the March quarter profits of Rs 14.17 crore.
Other income has shown an erratic growth while depreciation was down 19 per cent over the March quarter provisioning of Rs 5.02 crore and despite the tax provisioning having come down by 4 per cent the net profits were up by just about 1 per cent over the preceding quarter profits of Rs 5.50 crore. The stock is currently trading at around Rs 550 discounting its June quarter annualised EPS of Rs 17.97 by 29 times. Unless growth revs over the next few quarters, the stock seems fully valued. Moreover, the entry of new and big names into the BPO arena will increase competition and squeeze margins.