>WNS LIMITED (GOLDMAN SACHS)

LT model intact, liquidity strengthening; adjust ests, price target

What's changed
We adjust our estimates following reported 4QFY09 results. For FY10, we lower our GAAP EPS estimate to $0.13 ($0.34 prior); however, on an “adjusted” basis ex. stock compensation and amortization, our FY10 EPS estimate of $1.15 remains unchanged, with lower revenues (due to FX) offset by higher margins and lower taxes. For FY11, we reduce our GAAP EPS estimate to $0.26 ($0.46 prior), reflecting lower margin assumptions, offset by lower taxes. Our adjusted EPS estimate now stands at $1.28 ($1.25 prior) also reflecting slightly lower margin assumptions offset by lower taxes. Our organic revenue growth assumption remains unchanged. We introduce a long-term FY12 EPS estimate of $0.36 ($1.38 adjusted). We raise our 12-month price target to $10 (from $5 previously) to reflect recent sector relative multiple expansion, as well as improved sentiment regarding management transition and liquidity.

Implications
WNS’ initial FY10 revenue outlook (7%-8% yoy organic growth) coupled with results from offshore BPO peers confirm long-term growth opportunities remains, albeit at a slower rate. Importantly, we view WNS’ proactive efforts to improve its working capital and capex management as positive steps in restoring investor confidence. Our fundamental view remains constructive; however, we retain our Neutral rating as the shares appear fairly valued at 9X our FTM adjusted EPS estimate.

Valuation
Our 12-month price target of $10 is derived using a weighted average model incorporating a sector-relative Investment Framework, FTM P/E, and EV/EBITDA multiples; implying a FTM P/E of 9X on adjusted EPS.

Key risks
(1) Lower than expected revenue growth and/or margin leverage. (2) M&A integration risk. (3) FX volatility

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