Indian outsourcing firm said to be attracting solid interest for its IPO

WNS aims to raise up to $208 million and become the first listed Indian business process outsourcing firm.
WNS (Holdings), which is seeking to becoming IndiaÆs first listed business process outsourcing (BPO) firm, is meeting strong demand for its initial public offering of up to $208.6 million, according to sources.

Aside from projections of strong growth for the BPO industry over the next few years, investors also like the companyÆs diversified business model that incorporates much more than the call centres that tend to spring to mind at the mention of the BPO concept.

Having begun operations as an in-house unit of British Airways in 1996, the company started focusing on providing outsourcing services to third parties in fiscal 2003 after Warburg Pincus bought a controlling stake in the company in May 2002.

It now has more than 125 significant clients and ranks as one of the top two Indian offshore BPOs in terms of revenue, according to the National Association of Software and Service Companies (NASSCOM).

Its operations are split into three main industry-focused business units. These units cover the travel industry, including airlines and travel intermediaries for which it customer service and accounting; the banking, financial services and insurance industry, for which it provides loan processing and insurance claims management; and emerging businesses, which include a diverse range of industries such as manufacturing, retail, logistics, utilities and professional services.

Its more than 10,400 employees also provide a range of non-industry specific services within finance and accounting, human resources, supply-chain management and research and analytics related to markets, business and finance.

In fiscal 2006, which ended March 31, WNS posted revenues of $202.8 million and between fiscal 2003 to fiscal 2006 its top-line expanded at a compound annual growth rate (CAGR) of 54.9%. This compares with 42.1% for the overall Indian offshore BPO industry in the same period.

A report issued by NASSCOM together with management consulting firm McKinsey & Company estimates that the entire offshore BPO industry will grow at a CAGR of 37% from $11.4 billion in fiscal 2005 to $55 billion in fiscal 2010. Indian-based players, which accounted for 46% of the total market in fiscal 2005, is forecast to grow their revenues at a similar rate from $5 billion in 2005 to $25 billion in fiscal 2010.

WNS, whose current clients include Air Canada, insurance group AVIVA, British Airways, mortgage lender First Magnus Financial Corp, Tesco, web-based travel management and ticketing company Travelocity and Virgin Atlantic Airways, is planning to enhance these growth opportunities through selective acquisitions.

The companyÆs growth story together with the possibility to invest in a whole new sector, are said to have convinced may investors to look beyond the current market volatility and participate in the IPO. According to one source, the book was covered in the first two days of the roadshow based on Asian demand alone.

The company is offering 10.4 million American Depositary Shares, or 26.2% of the share capital, at a price between $18 and $20 each. The final price is expected to be determined on July 25 and the shares are scheduled to start trading on the New York Stock Exchange on the same day.

Morgan Stanley, Deutsche Bank and Merrill Lynch are joint bookrunners for the offering, while Citigroup and UBS also have roles on the underwriting syndicate.

Of the shares on offer, about 4.5 million, or 43%, are new shares issued by the company, while the remaining 5.9 million will be sold by existing shareholders, including Warburg Pincus and British Airways. The latterÆs stake will fall to 1.9% from 14.6% following the IPO, but the airline operator is expected to continue to use WNSÆ outsourcing services.

Warburg Pincus will see its share in the company reduced from 64.7% to 57.4%, or 53.6% if the 15% greenshoe of mainly secondary shares is exercised in full.

The price range values the company at between 32 and 35.7 times its fiscal 2006 earnings, which totaled $18.3 million or $0.56 per share. The company turned profitable in fiscal 2006 after two yearsÆ of losses as it built up the business towards third parties.

The net proceeds, which will amount to about $73.9 million based on the mid-point of the indicated range, will partly go towards potential acquisitions of businesses and delivery platforms. The rest will be used for capital expenditures and working capital.
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