WNS Holdings: Calling on India

09/29/2015 10:00 am EST

Focus: STOCKS

Paul Goodwin

Emerging Markets Specialist and Analyst, Cabot Heritage Corporation

Our latest investment idea is from India; the company is in the outsourcing business, but offers much more than customer service phone banks, explains Paul Goodwin, editor of Cabot Emerging Markets Investor.

WNS Holdings (WNS) is moving into specialized business services for insurers and travel firms, and focusing its expansion efforts on the enormous China market.

When most people think about business process outsourcing (BPO) based in India, they think of customer service phone banks in Mumbai.

That business provided great growth a couple of decades ago, but it was quickly commoditized as competitors offered similar services.

But while WNS Holdings does offer contact center services, it is also pushing BPO in unexpected directions.

WNS is a global company that serves over 200 clients, offering specialized professional services like actuarial analysis to insurance companies.

WNS Holdings is also offering innovative services to the travel and leisure industry, including end-to-end financial accounting and reporting, contingency-based revenue recovery, and consulting services.

With 85% of revenue coming from the UK, the US, and Australia, WNS Holdings is primarily an English-based service provider.

During the latest quarterly report, management identified China as a growth opportunity, as Chinese businesses come to recognize the value of handing off many high-overhead activities to outside providers.

WNS Holdings has enjoyed steady earnings growth since 2013. EPS jumped from $1.03 in fiscal 2013 to $1.37 in 2014 and $1.73 in 2015. The after-tax profit margin for the latest quarter was 16.9%.

The stock has also been gradually increasing its level of institutional support (105 mutual funds now own 30 million shares) as more whales recognize the steadiness and upside potential of this Indian back-office outsourcer.

WNS sports a very reasonable 17 P/E ratio and looks like a low-risk choice with the potential to outperform if its projections about the potential of China pans out.

The stock has remained relatively calm amid the market's recent tantrum and we think it will be a steady long-term performer.

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