Firstsource Solutions from the ICICI Stable sinks below Face Value Rs 10….Why !?

Thx Anup for your response in the earlier Larsen Blog where you also requested for my view on Firstsource Solutions as it’s share price sunk to Rs 9.75,below face Value of Rs 10 for the first time ever 

I hope this blog gives you some clarity on this Company

It was clearly an Opportunistic IPO at a Heavy Premium in Bullish Times….Despite a Networth of just Rs 100 crs,excluding Goodwill,Firstsource Solutions managed to raise Rs 384 crs ,offering shares at a Price that was nearly 30 times the Earnings

Even the Objects to the Issue were General…Rs 180 crs for Acqusitions that were yet to be identified,Rs 45 crs to repay a Loan from ICICI Bank.Rs 46 crs for creating New facilities,Rs 89 crs for General Corporate Purposes and Rs 24 crs for Issue Expenses 

Two years ago on January 29,2007, ICICI Group promoted,Firstsource Solutions, came out with it’s IPO at Rs 64 ( Face Value of Rs 10 + Premium of Rs 54).IPO Size was Rs 443.50 crs with a fresh issue of 60 million shares and an offer for sale of 9.3 million shares by Promoter, ICICI Group 

The issue received an overwhelming response and was oversubscribed 40 times….with the QIB Portion @ 71 times,Retail portion @ 11 times and Non Institutional category @ 40 times

It was listed at Rs 90 on February 22,2007 and reached a high of Rs 93 on May 15,2007…Since then it has drifted lower and lower….As of December 31,2008,It’s Shareholder Pedigree boasts the likes of ICICI Bank Promoter group ( 26.74% stake) and Aranda of the Temasek Group,Metavante,WestBridge,Galleon Group,Seacrest ( collectively holding 55.33%)

What has hit this pure play BPO Outfit ?……It’s simply the FCCB Exposure of US $ 275 Million and the effect of the Rupee Depreciation on it that is causing the sickness

The company has adopted AS 30 in FY 09 from July 1,2008 much before it becomes mandatory in FY 2012.It has designated the FCCB as a Hedging Instrument for it’s Net Investments in Non-Integral Foreign Operations.This requires it to debit any translation loss on the FCCB in event of the Rupee Depreciating to  a specially denominated Transalation Reserve and not through the Profit and Loss A/c…However the difference between the Fair Value of the Debt and the carried Value should be written off in the P & L A/c.Also any premium or discount on Forward contracts on hedged positions should be routed through the P & L A/c .Premiums to be paid on redemption have to be amortised over the life of the bond against the Share Premium Reserve 

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