Indian BPO Sector : Growth Story Continues

Abundant talent, quality and scaleable infrastructure, operational

excellence, and conducive business environment have led Indias growth story in

the BPO sector.

The BPO exports for FY 08 are estimated at $10.5 bn having grown 12.5% over

$8.4 bn in FY 07. The growth has tapered from 33.5% last year due to global

recessionary trends and the larger existing base. The BPO export revenues are

expected to grow at 21% for the next few years. The domestic BPO industry has

grown 42% CAGR since FY 05 to reach $1.8 bn for FY 08. The domestic BPO

industry, which is driven by macroeconomic factors such as GDP growth, sectoral

growth, increased technology adoption, and outsourcing of non-core activities to

well-capitalized vendors, is expected to grow at 35% y-o-y to reach $6 bn by FY

12.

The Indian BPO sector companies exposure to the stock markets is limited as

a majority of the companies are yet to reach a critical size for IPO or have

been listed on overseas markets. Some units are also captive to global

corporations and would not be listed in India.

Allsec Technologies: Negative Growth in Sales

Chennai-based Allsec Technologies, established in 1998, is a pure play,

third-party BPO company offering both voice and non-voice services. The company

provides BFSI, tech support, quality assurance, and HR processing service. The

company currently has around 3,000 employees on its payroll. The net sales for

the quarter ended December 31, 2007 stood at Rs 23.01 crore as against Rs 27.23

crore for the quarter ended December 31, 2006, recording a marginal negative

growth of 15%. Net losses after tax stood at Rs 6.76 crore as against Rs 6.86

crore, recording a downward movement of 197% on a q-o-q basis.

Similarly, consolidated revenues stood at Rs 127.52 crore for FY 07 compared

to Rs 93.9 crore for the previous year, recording a y-o-y growth of 36%.

Similarly, consolidated net profit stood at Rs 24.74 crore for FY 07 compared

to Rs 20.68 crore in the previous financial year, a y-o-y growth of 20%.

During the quarter, Allsec announced that it was setting up a new 200-seater

facility at Trichy in Tamil Nadu which is expected to become operational this

year. The new facility will bring in additional manpower and will meet the

growing demands of the existing customers. Similarly, Allsec entered into an

agreement to acquire the 100% shareholding of Kingdom Builders, a company in the

Philippines engaged in BPO operations. The total cost of the acquisition would

be around $1.5 mn. The company has already ramped up operations at the

Philippines-based call center by increasing the capacity to 750 seats from the

earlier 150 seats and is investing up to $20 mn and plans to increase the number

of seats to between 2,000-3,000 in the next three years. The company would add

to the base for tapping markets within the Southeast Asian region, particularly

Singapore, by this acquisition. Recently, Daniel AD Aniello, one of the

companys directors nominated by investor First Carlyle Ventures Mauritius, has

resigned from his post. Mahesh Parasuraman has been nominated as a director on

the board in his place. The stock currently trades at Rs 71.2.

Firstsource: Sales Grow By 77%

Formerly known as ICICI One Source, Firstsource provides business process

management to companies in the banking and financial services, telecom and

media, and healthcare industries. The company has over 14,000 people across

twenty-four centers in India, the Philippines, the UK, the US, and Argentina.

Firstsource reported a net revenue of Rs 378.92 crore for the third quarter

ended December 31, 2007 compared to Rs 214.53 crore for the corresponding

quarter last year, a growth of 77%. Net profit after tax, on the other hand,

stood at Rs 20.63 crore, down 31% as compared to Rs 30.21 crore the previous

year. Net sales for 2006-07 stood at Rs 831.02 crore for the year ended March

31, 2007 as compared to Rs 548.75 crore the previous year. The net profit stood

at Rs 97.25 crore for the year ended March 31, 2007 as compared to Rs 24.67

crore the previous year, a y-o-y growth of 294.2%.

During this quarter, Firstsource successfully completed a $275 mn FCCB issue

at zero coupon and at 35% premium. The proceeds of the issue have been utilized

to retire a high-cost loan taken for the MedAssist acquisition, which would

reduce the interest burden. Earlier in the quarter, Firstsource commenced its

operations in Salt Lake City, the US.

Recently, the company signed a five-year outsourcing partnership agreement,

worth $80 mn, with Barclays. Under the terms of the agreement, Firstsource will

manage and operate Barclays operations center in Colorado Springs, and provide

customer care and collections support to Barclays US cardholders. The company

is exploring the possibility of setting up centers in France, Germany, and Spain

as part of its organic growth plans. The stock currently trades at Rs 42.1.

Infosys Technologies : Extending Reach to Global Markets

20% Revenue Growth for 2008

Infosys Technologies is a multinational information technology services

company headquartered in Bangalore. The company was founded on July 2, 1981 in

Pune by NR Narayana Murthy, Nandan Nilekani, NS Raghavan, Kris Gopalakrishnan,

SD Shibulal, K Dinesh, and Ashok Arora. Today, it is one of Indias largest IT

companies, with nine development centers in India and over thirty offices

worldwide. Infosys and its subsidiaries employ over 80,501 people worldwide.

Infosys serves various industries through its Industrial Business Units (IBU)

such as Banking and Capital Markets, Communications Media and Entertainment,

Energy, Utilities and Services, Insurance, Healthcare and Life Sciences,

Manufacturing, Retail, Consumer Product Goods and Logistics, New Growth Engines,

India Business Unit. Additionally, there are horizontal business units (HBUs)

such as Consulting Solutions, Enterprise Solutions, Infrastructure Management

Services, Product Engineering and Testing Services and Systems Integration.

As on March 31, 2008, promoters held 20.4% of the companys shares, FIIs and

FIs held 50.1%, public and others held 26% while the balance 3% was held by

corporate bodies.

The company posted a net profit after tax of Rs 4,659 crore for the year

ended March 31, 2008 compared to Rs 3,856 crore for the year ended March 31,

2007, a y-o-y growth of 20.8%. Revenues for the year ended March 31, 2008

increased from Rs 13,893 crore for the year ended March 31, 2007 to Rs 16,692

crore for the year ended March 31, 2008, a y-o-y growth of 20.1%.

Geographically, 62% of the revenues came from North America, 28.1% from

Europe, and 9.9% from the rest of the world. The onsite revenues decreased from

49.9% in the previous year to 48.4% compared to offsite revenues increased from

50.1% to 51.6% for FY 08. The operating profit amounted to Rs 5,238 crore

compared to Rs 4,391 crore in the previous year, a growth of 19.7%.

During the year, Infosys introduced a new dedicated vendor offshore facility

(VOF). Alliance Bank of Kazakhstan and Hrvatska Postanska Banka DD of Croatia

chose Finacle Universal Banking Solution of Infosys. Infosys launched Finacle

Bank-in-a-Box (BIAB), a pre-configured and integrated framework, for banking

automation. Recently, the company bagged the implementation of Finacle, a

banking solution product for Nadra Bank of Ukraine.

The company won several accolades during the year. It received the top score

for overall strategy in applications outsourcing (AO) among North American AO

providers, according to Forrester Research, an industry analyst firm. The Field

Optimization Suite jointly developed by BT and Infosys won the National

Outsourcing Association (NOA) award for Innovative Outsourcing Project of 2007.

Similarly, Gartner positioned the company in the leaders quadrant in its report

Magic Quadrant for European Offshore Applications Services 2007. Infosys also

entered the Balanced Scorecard Hall of Fame for Executing Strategy for achieving

breakthrough performance results using the Balanced Scorecard (BSC). The award

has been instituted by the Palladium Group, a global professional services firm.

Infosys posted a net profit after tax of Rs 1,249 crore for the quarter ended

March 31, 2008 as compared to Rs 1,145 crore for the corresponding quarter last

year, a 9.9% y-o-y growth.

The company recruited 18,946 new employees worldwide, taking the total

strength to 91,817. The first group of twenty-five graduates from the UK joined

for training at the Infosys Global Education Center in Mysore as a part of the

customized software engineer education program.

The company expects revenues to be in the range of Rs 4,570 crore and Rs

4,582 crore, a y-o-y growth of 21.1-21.4% for the first quarter ending June

2008.

For the fiscal year ending March 31, 2009, the revenue is expected to be in

the range of Rs 19,894-20,214 crore, a y-o-y growth of 19.2-21.1% at an

estimated conversion rate of 1$ = Rs 40.02.

The shares of Infosys currently change hand at Rs 168. This reflects the

strength of the Infosys brand and the expectation that it will be able to tide

over the possible downturn in the US far more comfortably than its peers. We

believe that the companys premier position in the IT outsourcing market will

continue to be maintained. Outperformer.

Sushanto Mitra



The author is director, Techcap India


sushanto@techcapIndia.com

The views reflected here are of the author and not of this publication. No

liability is accepted for losses based on the information presented here