WNS (Holdings) Ltd (WNS) 2006 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the second quarter 2006 WNS Holdings Limited Earnings Conference Call. My name is Michelle and I'll be your audio coordinator for today.

[OPERATOR INSTRUCTIONS]

I would now like to turn the presentation over to your posts for today's call, Mr. Jay Venkateswaran, Senior Vice President of Investor Relations. Please proceed, sir.

Thank you, Michelle. Good morning ladies and gentlemen and good afternoon and good evening to those of you joining us from Europe and Asia. Welcome today's conference call. I am Jay Venkateswaran, Senior Vice President of Investor Relations at WNS. With me on this call I have Neeraj Bhargava our Chief Executive Officer and Zubin Dubash our Chief Financial Officer.

Today's remarks will focus on our recently announced results for the fiscal second-quarter ended September 30, 2006. In addition to discussing WNS' financial performance for the quarter, we want to use this call to update you on some recent business developments and update our guidance for the year. Our agenda is as follows; Neeraj will begin with some opening remarks that will provide an overview of this quarter's business and financial developments. Zubin will then provide specific details on the fiscal second-quarter financial results. And finally, Neeraj will return to provide some closing thoughts before we open the call to questions.

Some of the matters we will discuss during this call are forward-looking and you should keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to those factors set forth in our State Registration Statement filed in connection with our recent IPO and our form 6-K, which is to be filed today with the SEC.

WNS assumes no obligation to update the information presented on this conference call. During our call today, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors and analysts. You can find reconciliations of these non-GAAP measures to GAAP measures in our press release, which was filed last night, which is available on our website at www.WNSgs.com, and in our form 6-K filing. Please also note that our fiscal year ends on March 31st of each year. Finally, I would like to remind you that we do not permit taping of this call. However there is a web cast that can be replayed in its entirety, beginning today at approximately 10 a.m. Eastern time.

With that introduction I would like to time a call over to Neeraj Bhargava our Chief Executive Officer.

Thank you, Jay, and think you all for joining us for our second conference call as a public company. We are delighted to be here, and to have you on this call with us. I'm pleased to say, the WNS had an excellent fiscal quarter, in terms of revenue and profitability. The key achievements during this period included a record 32% growth in revenue, less repair payments and 64.6% growth in our non-GAAP net income.

We have also added precisely 1094 people, exceeding talent additions for the second successive quarter. This aggressive growth has been necessary to maintain the ramp ups for new business that we want. However, the growth in employees, which brings our total headcount to 13,064 people, has been exerting some pressure on human physical resources. Despite this, we have achieved our targeted profit level for the first half of this fiscal year.

This performance clearly demonstrates the strength of our business and underscores our confidence in delivering our projected results for the year. What is even more encouraging is to see how well the organization and support functions have coped with these positive developments. Having been through two excellent quarters, we expect to move into the [inaudible] model in the third quarter of this financial year. Zubin will provide you with more color on our full financial results and guidance for the year in a few moments.

Before it does that, I would like to focus on some operational highlights from the second quarter. These include our continuous investment in human capital, the development of new and broader client relationships as well as our current efforts and future plans for both organic and acquisition based growth. To begin with I would like to discuss our progress related to the development of human capital. As we have said previously, we believe WNS' high-quality management team comprising of individuals with extensive expertise, not only in the [inaudible] area, but also our targeted industries is an important differentiator.

This allows us to better serve clients and thereby build value for our shareholders. We believe our human capital advantages emit from the strength of our Board of Directors, which is in the process of becoming majority independent and increasingly global in line with our objectives. In this context I would like to announce that Pulak Prasad of Warburg Pincus, Warburg being our majority shareholder, has stepped down from the board on November 3rd, 2006.

Pulak who served for four years on our board has played a key role in guiding us through the process of transforming our company from being a captive British Airways unit, to a leading offshore BPO provider. I'm also pleased to announce that Richard Bernays joins the board of WNS on November 14th, 2006 as our third independent director, taking Pulak's place. Richard brings to WNS more than 30 years of experience in the UK market, particularly the financial services sector. His experience includes serving as the CEO of Old Mutual international, as the deputy chairman of Jupiter Asset Management and CEO of Hill Samuel Asset Management.

He is also the current chairman of the board at Hermes Pensions Management. We further strengthened our team in the second quarter, with the addition of [inaudible] as Chief People Officer and Arjun Singh as the CEO of our Banking Financial Services and Insurance or BFSI business unit. Aniruddha Limaye joins WNS from IBM's Business Consulting Services where he was the Human Capital Management Consulting practice leader in India. His diverse experience in HR, which also includes positions at Daksh e-Services, provides an excellent balance of management skills and process orientation, which is very important in the employee focused BPO business.

We are also pleased to welcome Arjun, who joins WNS from ABN AMRO, where as the Amsterdam based regional director he had responsibility for major corporate clients in 22 countries across Europe. This background, combined with his prior experience at Genpact makes him uniquely qualified to lead our growing BFSI business unit and further enhances the high-quality service delivery our customers have come to expect. We are very excited about having these two individuals join the WNS leadership team.

I would also like to announce that three of the four senior managers of the Mortgage Banking business created through the acquisition of [inaudible] Partners, has decided to leave the company by December 2006, in line with our expectations. They have overseen one year of integration and growth, having delivered on of all their commitments to WNS. They leave the Mortgage Banking segment of the BFSI business unit in very good shape, and several new client wins and a very robust pipeline.

We feel confident that Arjun Singh, with the assistance of the fourth member of the team Francesco Paola, who is staying back, are well-equipped to lead this business as part of the overall BFSI business unit. It is also important to note that we hired specifically to meet client needs. Our abilities to hire and train such a large number of people during the first half of this fiscal year demonstrates our success in operational excellence, and it relates our ability to ramp up into rapidly respond to client needs.

This brings me to my second topic for this morning's discussion, which is the positive dynamics we are seeing in the offshore BPO industry. Offshore BPO continues to be on a circular growth path, with growing penetration across industries. Our growing enterprise and knowledge services businesses continue to help us penetrate new industry segments and we are particularly excited about our successes in the logistics, the professional services area and media and entertainment. Our travel and BFSI businesses continue to be robust, with the mortgage banking market looking particularly attractive. Recent successes have included new business wins as well as expansions of existing client relationships.

Looking for is that new client wins. The second quarter is typically quiet due to the holiday season, however, we continue to seeing significant momentum and [inaudible] has closed several [inaudible] in the three-month period. These include a financial research contract for a midsized investment bank, to financial accounting processes. One for a US fast food chain, and one for leading publishing house; and a transaction processing assignment for a leading European shipping company.

Equally gratifying, we are seeing a growing number of companies that are expanding their relationships with us. These clients recognize the value we provide in terms of process quality, efficiency and cost. What we collectively refer to as operational excellence. In this quarter, with the new and expanded key client relationships, including -- market research services to a key professional services client; analytics work for leading pharmaceuticals company in transaction processing for a leading express career company. From a delivery standpoint, we focused on a number of new clients at various stages of ramp up. Let me touch upon some highlights.

We have successfully ramped up more than 1000 people within five months for leading UK utility. In fact, as we go to the press, we have also got some follow-on work from them in the financial and accounting area. We are also at an advanced stage of ramping up contracts with a leading consumer products company and a leading US airline. We are in the initial stages of ramping up operations for a US media and entertainment company.

These client wins and renewals I just mentioned, point to a clear growth trend in knowledge and enterprise services, which address multiple industries, with services such as business, financial and market research, and finance and accounting services. As these businesses continue to expand, we also are developing significant expertise in various client industries, and expect to create one to two new vertical business units during the next fiscal year, as we believe that industry specific services offer a tremendous BPO opportunity in the offshore contracts.

We are also growing in other ways, and this is the last area I want to touch on before I turn the call over to Zubin. As we shared with you during our road show, one of our key strategic objectives is to further enhance our organic growth through strategic acquisitions, focused on building new capabilities and industry expertise. On September 7th, we announced our acquisition of the business assets of PRG Airline Services Ltd. Previously, the Airline Revenue Recovery Division of PRG-Schultz International, one of the leading recovery audit companies. It's a small step in our overall acquisition strategy, but an excellent example of the types of investments we plan to make. Investments that complement and broaden our existing services and provide opportunities to expand client relationships.

Going forward, our M&A deal pipeline continues to be very interesting, and we remain active. That said, we believe valuations are rich at this time, so we will move forward in a very disciplined and prudent manner. Importantly, we also are expanding our operational footprint and making significant progress against our goal of opening a location in Europe that will expand our language capabilities. We have a dedicated team focused on this initiative and expect to announce concrete plane shortly.

Finally attrition was modestly higher at 34% and our delivery managers are making every effort to contain this issue. This can be improved further, but it is not a significant concern. And on that note, I will turn the call over to Zubin to provide additional color on our financial results. Zubin?

Thank you Neeraj and again welcome to all of you joining us on this call. Before we were view our results, it is important to note that WNS' revenue is generated primarily from providing BPO services. The company has two reportable segments for financial statement reporting purposes; WNS Global BPO and WNS Auto Claims BPO. In the WNS Auto Claims BPO segment, we provide accident management services in which we arrange for automobile repairs through a network of third-party repair centers.

The amounts invoiced to WNS clients for payments made by WNS' third-party repair centers are reported as revenue. Since the company wholly subcontracts the repairs to repair centers, it evaluates its financial performance based on revenue less repair payments to third-party repair centers. This is a non-GAAP measure.

Now let's look our results for the revenue less repair payments on non-GAAP basis. Revenue less repair payments for the order was higher than expected. At $53 million, it was up 52%, from $34.8 million a year earlier, and up 16.4% from $45.5 million in the previous quarter. Gross profit was $19.3 million or 36.4% of revenue less repair payments, compared with $13.4 million or 38.4% of revenue less repair payments in the year's earlier quarter and $15.6 million or 34.3% of revenue less repair payments in the previous quarter.

This represents a 210 basis point sequential expansion in gross margins. SG&A expenses, excluding share based compensation expenses for the quarter were $11.4 million or 21.5% of revenue less repair payments, compared with $8.2 million or 23.5% of revenue less repair payments a year earlier.

Operating income, excluding amortization of intangible assets and share based compensation expenses for the quarter was $7.9 million or 15% of revenue less repair payments, compared with $5.2 million or 14.8% of revenue less repair payments a year earlier and $5.7 million or 12.5% of revenue less repair payments for the quarter ended June 20th, 2006.

Looking at the remainder of fiscal 2007, I would like to mention that we expect the third quarter to be a quarter of consolidation after two quarters of growth that exceeded our expectations. We are updating the guidance we provided during our previous call on August 21st. We are now revising upwards our estimate for revenue less repair payments from the previously estimated range of $205 million to $208 million. It is now estimated to be slightly higher than the $208 million for the fiscal year ending the 31st of March 2007.

Our net income for the fiscal year 2007 before amortization of intangible assets and share based compensation expenses remains unchanged and is expected to be between $30.5 million and $32.5 million. This is despite additional investments on due diligence on our European location and an upgrade of our IP platform in the Travel Business unit. Capital expenditure for the year is expected to be slightly higher than previously stated. We are increasing our estimate from approximately $25 million, to approximately $26 million for the year.

This is largely because of slightly higher than expected GAAP [inaudible] additions during the year. The results announced today position as well to achieve these targets. As a set last quarter, it is our intention to provide guidance for the fiscal year and update [inaudible] on a quarterly basis.

Thank you for your attention, I'll now ask Neeraj to come back for some concluding remarks before we take questions. Neeraj?

Thank you Zubin. As you heard, we delivered strong results for this quarter, and are well positioned for the year as characterized by our investment in human capital, the development of client relationships and ongoing organic and acquisition based growth. We continue to be differentiated in the marketplace by our sharp industry focus, emphasis on operational excellence and the high quality management team which has grown even stronger in this quarter. Moreover, we are delivering on our strategy to build a world [inaudible]. As Zubin stated, we expect the 2007 fiscal year in line with the guidance we've given, putting us on track for a strong fiscal 2008. Thank you for joining us today and we are now ready to take questions.

Thank you, sir.

[OPERATOR INSTRUCTIONS]

And our first question comes from the line of Ashwin Vas Shirvaikar of Citigroup. Please proceed.

Thank you and nice quarter. Congratulations.

Thank you.

The first question is, should we expect a seasonal lift in the travel vertical because of the holiday travel season coming up? And how does that affect your financials?

This is Neeraj. The travel business has some seasonal lift in October, November but December and January are actually weakened because most of the bookings have actually been made. We witnessed some weakness in the travel area after the Stuart Heathrow Airport in August and that slowed things down a little bit, however, we were able to balance that with growth in other areas. What we are likely to see is that that weakness is going to rebound little bit in the sense because of a seasonal factors, but we are, given some of the overall and buyer may see in the travel area, we expect this to be in line with our expectations and not exceeding our expectations.

Okay. And in terms of, there's one item for a housekeeping item. The other expense underlined. Could you explain what that was? Because that was sort of unexpected, it negated your interest income.

Yes. In your other expense income, what you have it is a net figure of 48, which is made up of interest income of about $820,000 that is mainly as a result of the IPO proceeds. And then we had a foreign exchange loss of about $964,000. That is on account of termination of a forward contract, which we had taken to hedge our long-standing receivables.

So are not hedged going forward?

We are hedged going forward. Our policy is to hedge a substantial amount of our foreign exchange exposure, but we do in different ways. Going forward, most of our hedges are based on options as opposed to foreign exchange, as opposed to forward contracts, so the downside on that is known and limited.

Good. Thank you.

And our next question comes from the line of Mitali Ghosh of Merrill Lynch. Please proceed.

Yes, hi. Congrats on a good quarter. And I wanted to understand a bit on -- you've seen good margin improvement this quarter. And partly of course, it is because you felt wage hikes and sort of getting absorbed. But if you could talk a bit more about what the other metrics looks like, how shift utilization was etc.. So just a discussion on the margins?

As we expected in the last quarter, we expected to increase -- we expected margins to improve as we went forward. That has happened as the same cost space, particularly around facilities costs have got absorbed over higher revenue base. In addition, we have significant ramp up in the first quarter and to some extent in the second quarter. We don't expect that significant a ramp up in any particular process in the third quarter, so therefore, you will see -- and that is a reason for the margins having gone up, both in the second quarter, and we expect that to continue to some extent in the next two quarters as well. [inaudible] utilization, we continued to operate at a [inaudible] utilization of 2.2. In terms of [inaudible], and that's pretty much in line with what our expectations are.

Okay. And just on the competitive environment that you've seen today. If you could comment on what are the changes that you're seeing there? Also a Neeraj made a comment in the beginning saying that you are looking to add a couple of more verticals next year. Maybe if you could just elaborate a bit on that?

Okay. Thanks, Mitali. On the first question on the competitive environment. It's a little bit more of the same in the sense that we have some global competitors, who are active in the market. There are also a few domestic Indian players that are very active in the market and our senses that the overall market is very good, and we are winning our fair share of the deals, if not more than our fair share of the deals. So we feel very good about our competitive position.

We also see our -- which would bring me to my second point, which is our expansion of some of our presence in new areas, some of which offer us the potential of being the market leading company in those areas as well. In terms of new verticals, we are entering into a planning cycle, and we are going to look at this issue in the more organized manner over the next two quarters. We are very excited about logistics. Our professional services or a growth which comes from knowledge services activities or KPO, continues to be very strong and we've been pleasantly surprised by the number of wins we've had in the media and entertainment area, which quite honestly wasn't a part of a very organized strategy.

But given the number of clients we've got there, we're thinking about that segment in a more organized manner as well. So it's again too early for us to talk about precisely which ones we will formally spin off into a business unit, but we are feeling good about the momentum as well as scale gauging in a few areas to expect us to do -- spin out at least one or two more in the next two quarters.

Good. And finally just on the three people that you've mentioned from the Trinity team will be leaving you in December. If you could just help us understand what are, sort of the reasons behind that? You said that this was you sort of. So if you could just talk a bit about that?

Just to get you a sense of Trinity, there were four key managers that came in through the acquisition - Vivek Shivpuri, Amit Gujral, Arvind Srivastava and Francesco Paola. The first three really original founders and Francesco was a key hire they made after they founded the company and he was playing the leading field and business development role for them. Our understanding with them was that they would at least stay for a year and take us to a point where we can run it without them, and secondly, meet their growth objected that they promised us.

We obviously would have preferred in some ways, if they would have chosen to stay with us longer. They were very fine people and delivered on every professional and personal commitment they've made. But however, their point of view was their entrepreneurs and they would much rather do something unrelated on their own, or perhaps not do something for some time, and we certainly respect that. This was something about to our attention in the August -September time frame.

We'll plan this very carefully and the fact that Arjun's coming to take charge of the business unit and Francesco is deciding to stay to lead the field and business development efforts, we feel very good about where we have ended up. And just on one more note, we've made acquisitions here before, a WNS and I've been involved in many deals before. I can say that this is one of the better ones we've done, both in terms of how the numbers that got delivered as well as the personal chemistry we've enjoyed with the team that has come in. So again, very grateful to Vivek, Amit and Arvind for all their efforts and more importantly leaving a legacy that is very strong.

Okay. Thank you very much, and wish you the best.

And our next question comes from the line of Julie Santoriello, of Morgan Stanley. Please proceed.

Thanks. Good morning. Can you elaborate a bit more on turnover? You said that it did move up a bit in the quarter. Don't seem very concerned about it. But just if you can help us understand if you have at this point, and kind of a postmortem on what happened in the quarter? Are there any seasonal effects here? And if there are specific plans in place to help bring down turnover? Thanks.

As said earlier, Julie, this is Neeraj -- we ended up at 34%. Typically, we would like to be closer to 30%, but not exceeding 35%. 30 to 35% is the range that we are prepared to handle. This is the higher end of our range, so therefore it's not something that we would like to see, but however, we are very much prepared to deal with it. In terms of some of the reasons for it, there are possibly some seasonal factors in the sense that our evaluations and bonuses [inaudible] get completed typically in May of the year of any calendar year. And you do tend to see June, July and possibly August as active months for people to change jobs. So there is a little bit of that.

The other factor that really played in for us was that in one of our locations, which is [Pune] there is a lot more activity in terms of new companies starting BPO operations there, which are mostly captive operations of leading multinationals. And sometimes those factors, temporary lead to a surge in attrition. We are attacking this problem head-on and we are, with the new leadership in the HR area looking at many different ways to contain this. Again as we mentioned, this is not a cause for concern, but certainly a place where we can make improvements.

Okay. Thanks for that. And am I right to infer from your comments earlier Neeraj, that you had about three client wins in the quarter? Primarily in the financial services area?

We actually had four new client wins. One from a midsize investment bank, one from a US fast food chain, one from a publishing house, and one from a shipping company. These are four new clients, people we hadn't [inaudible] before this quarter. And in addition to that we've had about close to six expansions of relationships, which also got closed this quarter.

Okay, thanks. And just one last one. If we can get an update on your three largest customers, PA, Aviva and Travelocity? Any new developments with any of those companies?

Sure. As far as PA is concerned, I think we announced earlier that the contract was renewed until 2012. We also moved a portion of the arrangements to the [yearly] transaction price model and one of the things that is now relevant to that situation is that we have the opportunity to increase productivity and improve the economics of our work with them. And certainly that's something that the team is thinking. As per Aviva is concerned, again, as we announced that we were able to extend the relationship in Sri Lanka till June of next year and in Pune till December of next year. That pretty much remains the status. We are engaging with them on a few other things at this point of time, but there is nothing new to report.

Travelocity continues to be a very strong relationship. There has been modest expansion of activity. We are optimistic for more business, but it's not something that we've closed as yet. I also would like to highlight that the UK utility where we ramped it up to over 1000 people has now emerged as a top five client, and we are also seeing growth opportunities there as well.

Thank you.

[OPERATOR INSTRUCTIONS]

And our next question comes from the line of [Priyanka Bakaya] of Lehman Brothers. Please proceed.

Thank you guys, well done on the quarter. Just in terms of the revenue growth, I wanted to get a better idea on what geographies this is coming from? And then also, anything in particular you see helping with the client and deal wins?

Right. This is Neeraj. On the growth in the last quarter, we've had a mix of growth coming from, both of the UK and the US. In fact, some of the expansion in the UK last quarter has been quite strong. But going forward, looking at both our pipeline as well as new bookings, we expect the share of North America as a part or our business to continue to rise. In fact, we have a very strong pipeline in North America, and certainly next year we expect that business to grow a lot faster than UK European business.

Okay. And then in total, the second part, anything in particular, you can point to helping you with those new deal wins?

Sorry, I didn't really get the question.

Just, anything that's been helping with the new deal wins on your side? [inaudible].

Well, I think first of all our value proposition in terms of offering very sharp, industry focused services continues to be a winning strategy. We have been extremely successful in taking our success, with one customer in a segment and creating a good story on product lines and service lines we can offer to other clients in that segment, and a very quickly follow on one or two wins with many more. As I mentioned earlier, what was not entirely planned, but we've had some remarkable success in the media and entertainment area.

And now I think with the successes we have had, the team has got extremely sharp about what is really required to have a winning value proposition with clients in that area. So, if I were to think about two things that really stand out as we compete in the market, the first is that we are extremely sharp about defining what is the right way to serve a client and secondly, we follow that up with demonstrating world-class operational capability. And both of those together are winning combination.

Okay. Great thanks. And just one last thing? On share based compensation to use still see that hitting $4 million this year? It seems to be just over $1 million so far?

Yes. I think the reason is, the bulk of the share based compensation only started after July of this year. So you have only had effectively two months of that hitting you in this -- in the first six months, of the first half.

Okay. Okay. Okay, thanks a lot guys.

And our next question comes from the line of Brandt Sakakeeny of Deutsche Bank. Please proceed.

Thank good morning guys, congratulations on the quarter. Could you just delve into the media and entertainment segment a little bit more and maybe talk specifically about what type of activities are you doing for those clients? Thanks.

Well, our initial foray into the media and entertainment area is into a wide variety of finance and accounting services. Some of these are more general in nature, which are similar to what we do in other areas; like various types of accounting and monetary transactions like accounts payables activities.

But more importantly, we have also been able to win engagements involving some very specific types of work like royalty accounting, which if you've got a media product that you're distributing, then that's a very important element of it. Looking at various types of procurement activities as well. So our initial entry point has been being more [technical difficulty] F&A work. But the F&A work has become a lot more specific now to some of the nuances of what gets done in those areas.

As we start looking more broadly into that area, we expect two of the other areas become opportunities for us where we are not working today. One of them would be a variety of content management activities, which clearly a lot of smaller BPO companies have been very active in that area. But we are beginning to form client relationships that allow us to think a little bit more about participating in that as well. So it's still early days, and that is still to come but we are beginning to sense that the segment is one where we can offer a broad range of services.

That's great. And are these clients mainly North American or are they coming from all over?

We've got a mix of North American and UK clients in that area.

Okay. And I guess the second question is, you spoke to the BA contract, and also some slight slowdown following the issue at Heathrow. Did - because the transaction pricing model with BA -- did you have to absorb any lower margins this quarter associated with the slight slowdown in travel?

Well, actually BA did not get hit to the same extent as one or two other client with the Heathrow slowdown, because -- it all depends also on the nature of what we do. I think in our road show we did describe one example, which was that sometimes a slowdown is actually good for business. For example, if people are not traveling, they actually seek more refunds and in their refund activities, the team's end up doing overtime and we end up making more money.

So it's not totally clear that given the spread of our business that if there is a slowdown, it necessarily means negative things for us. I think the point who are making was that in areas where it was particularly with the travel agency group that we serve, if there are lower bookings that that involves lower customer service and some of those areas get affected. But as again, we discussed in the past, the environment sensitivity to our travel industry revenues is not very high.

So while it might make a small difference in the quarter, overall, it does even out, because there are many things that actually go up as a few things come down. So we are not overly concerned about that, but at the same time, we did see some softening in the travel area in the August - September timeframe, which doesn't lend us in line with the question asked before. Believe that we will see a major upsurge in this quarter.

Great. Thanks for the call, and I guess finally, any preliminary comments or early comments on the Wells Fargo transaction? Have you seen any uptake in that sales channel that you released, I guess last month?

Well, in general our business in the mortgage industry is growing very well and is very promising. Barring a couple of situations, it is still involving a lot of pilots we are doing in multiple processes in that area. So the Wells Fargo relationship is clearly a major feather in our in terms of working with someone of that caliber and creating a new product line. However, at this point of time, most of the things we are doing involving that are smaller engagements and pilots. People are still very cautious about large-scale outsourcing in that area. But what we feel good about is the fact that we've got into many relationships at the ground floor level, which offer us a lot of promise for us to grow in the coming year.

Right. Thank you, very much.

[OPERATOR INSTRUCTIONS]

And our next question is a follow up question from the line of Mitali Ghosh. Please proceed.

Yes. Thanks. Two questions actually. One is if you could comment on how pricing trends were during the quarter?

The pricing has been stable, if not marginally better. We've also in this quarter, in terms of the new business being generated, has been more higher value add, as well as more specialized in many of the areas. And the moment you do more of that then the average price at which you bill the resources actually tends to go up. So in general, we feel good about the pricing. Not so much because we can raise the price, but more because of the fact that we are able to offer a better mix of services.

So, essentially what you're saying is pricing is somewhat stable but your revenue productivity is going up?

That's right. That's right.

And the second question was on the tax. [inaudible] believe you can guide us to what you are expecting for the full year? And if there is any update from the transfer pricing review you spoke about in the call last time?

Third plant? We've appointed our consultant for the transfer pricing study. It is just about to commence. I can't give you any more -- shed any more light on that at this point in time. We expect the study to give us a lot more clarity some time in the middle of the fourth quarter, which will be around the end of Jan. -- February, is when we expect some more clarity. What seen is that the average tax rate has reduced.

And that is primarily on account of the fact that assistance, which is where we pay the most amount of taxes in the UK -- the [id auto] claims business where we pay the most amount of taxes in the UK, that as a percentage of our total income has declined and hence the average tax rate has declined. However like I said in the earlier call as well, we need to finish off this transfer study and we'll only know the outcome of this around in the fourth quarter of this year. And it's only then that we'll be able to tell you with more clarity which way -- whether the tax rate -- which way the tax rate is going.

So is it fair to assume that without any change suggested by the transfer pricing review, your tax rate should be at 9 -- 10% kind of levels for the year?

Yes. Subject to the transfer pricing review.

Right. Okay, thanks.

And our next question is a follow up question from the line of Ashwin Shirvaikar. Please proceed.

Oh, hi. Thank you. The question is, the people you are hiring - how many of them are in your core BPO business in India and how many are in the auto claims business? In the UK?

Our auto claims team in the last quarter has more or less been flat. There have not been much new additions there.

Right.

Almost all the additions we have had are in the lower BPO business which is based in India and Sri Lanka.

Okay. So, I am trying to figure out why the auto claims profitability is sort of 'erratic'? It goes around from quarter to quarter. If it's not because of hiring in the UK, what other factors might affect that business?

Okay. When Neeraj said it's not -- then if you look at the total hiring, almost all - most of the hiring came through the Global BPO business. There was some hiring in the auto claim business as well. Let me explain a little bit about the auto claim business margins. The reason for the variability is the fact that we started off on a new client. Which was around the end of the first quarter. It was the end of the first quarter in June, was when we started to ramp up for this client.

A significant portion of that ramp up actually happened during the second quarter, i.e. between July to September. The result of that ramp up, you see the revenue of the auto claims business rise significantly in this quarter, versus the last quarter. What you will also see is the fact that during this ramp up phase, we need to have a lot more people to make that we are actually -- the process gets stabilized and we are meeting the SLA requirements. And hence the margins during that ramp up phase of that particular client, into depress the margins in that particular business.

Okay. Is that [Leopold-Victoria]? Okay. Are you going to move those jobs or are they required to be in the UK?

They will be in the UK.

Okay. Thank you.

And our next question is a follow up question from the line of [Julie Santoriello]. Please proceed.

Thanks. Just a question on DSOs. They did come in higher than we had anticipated. It looks like from our calculations, around 64 days? We were thinking of something more around 50 days. This is up, I guess about four days from the prior quarter. Anything of note going on there? And what's the right target DSO we should be looking for going forward?

I think Julie, the one variation on the DSO. We normally look at things on the basis of net revenue. In the case of DSO, we need to look at it on the basis of gross revenues, because while we bill our clients, we bill them for garaged repayments as well as our own mark up. So there fore -- and that's reflected in both debtors as well as in revenue. So if you actually look at it on a gross basis, we have to go in to the 40 day period.

Okay, thank you.

Ladies and gentlemen, this does conclude the question and answer portion of today's conference call. I'd like to turn the presentation back over to management for any closing remarks.

Right. Well again, thank you all for attending this call. We are obviously very pleased that -- in [inaudible] well this quarter and again look forward to our continuing interaction with you. And thanks for taking the time.

Ladies and gentlemen, thanks for your participation in today's conference call. This does conclude your presentation, and you may now disconnect. Have a great day.