BPO

IT services and BPO firm Cambridge Solutions has recorded a 94% decline in net profit at Rs 99 lakh during the second quarter of 2007-08 when compared with Rs 17.17 crore in Q2FY07.

The company was severely impacted by the discontinuance of Albion (the US IT government division) and a one-time exceptional income owing to the settlement of a liability during the quarter ended September 30, 2006, the company said in a statement to the NSE.

The company registered a top line of Rs 310.4 crore in Q2FY08 - a dip of 14 % when compared with the corresponding quarter last fiscal.

While the Americas contributed 72.2% of consolidated revenue followed by Australia at 15.2% and Europe and Asia at 12.6%.

The non-voiced BPO major Tricom India Ltd, which has units in Nashik and Mumbai, has recorded a 30.52 per cent rise in revenues during the second quarter-ended September 30.

The company’s consolidated revenue has risen Rs 3.03 crore to Rs 12.95 crore during the second quarter-ended September 30 last against Rs 9.93 crore during the corresponding period last year.

The company recorded a consolidated net profit after tax of Rs 4.19 crore during Q2-ended September 30, against Rs 4.09 crore during the corresponding period last year.

During first half, the company registered a 29.40 per cent rise to Rs 23.86 crore in its net revenue, against Rs 1,8.44 crore in the corresponding period last year.

Tricom India Ltd, which is listed on NSE, BSE and Luxembourg Stock Exchange, is a non-voice ITôBPO service provider specialising in the areas of document management and data capturing. The company has a presence in the USA and India with customers spread across USA, Canada, UK, Ireland and Australia.

In document management and data capturing, the company specialises in services like litigation coding, electronic data discovery, indexing, remittance processing, health claim processing, mortgage documents/title plant maintenance and e-publishing.

Tricom’s infrastructure consists of 65,000 sq ft spread across two locations in Mumbai and Nashik, with a headcount of 2,400+ trained employees.

Aditya Birla Nuvo (ABN) has recorded a two per cent increase in net profit at Rs 54.9 crore for the quarter ended September 30, 2007 as against Rs 53.7 crore during the corresponding quarter last fiscal.

Revenue of the company also went up by two per cent at Rs 917.7 crore during the reporting quarter as against Rs 896.5 crore during the quarter ended September 30, 2006, company’s whole time director and CFO Adesh Gupta told reporters here.

Gupta said the company would invest Rs 514.6 crore during the current fiscal on various expansion projects including Rs 228.6 crore in direct subsidiaries.

Consolidated revenue of the Aditya Birla Group company went up by 43 per cent at Rs 3,000.5 crore during the quarter ended September 30, 2007 as against Rs 2,092 crore during the corresponding quarter last fiscal.

Consoliadted net profit of the company, however, went down by 38 per cent at Rs 47.8 crore during the quarter as against Rs 76.7 crore during the quarter ended September 30, 2006.

Gupta said the telecom business of the company registered a 55 per cent rise in revenue at Rs 1,562.2 crore during the quarter as against Rs 1009.9 crore during the same quarter last fiscal.

Revenue from the life insurance business also went up 110 per cent in revenues at Rs 1078.2 crore as against Rs 512.9 crore during the quarter ended September 30, 2006.

It increased from the BPO business as well by 82 per cent at Rs 393.7 crore from Rs 216 crore.

The IT sector and BPO companies have seen only good times, except in early 2000. This trend of the rising rupee will force them to be more innovative in managing their treasury, operational efficiency and their geographic footprint. For last several years, many Indian companies (the top 10), were satisfied with their on-site /offshore (read India) model.

Now it has become important to speed up plans to not only spread the geo-political risk but to manage the strategic risk. Indian IT/ITES companies have also started diversifying globally in order to reduce their exposure to the US market. For instance, the big five Indian IT companies, derive about 70% of their revenues from the US, have now started focusing on Europe in a big way (Infosys, WIPRO and TCS get about 28%-30 % revenue from Europe.)

The Indian rupee is on a rising curve. In the past one month it has appreciated by 3.6% to the dollar and since January 1 by a whopping 12% to the dollar. The rising rupee has become a major cause for concern among Indian ITES/BPOs firms, especially the smaller firms that are not adequately hedged. Minimum alternative tax (MAT) and service tax further add to their blues. With every 1% appreciation in the rupee the operational margins decline by almost to the tune of four basis points.

The BPO companies are primarily offshore driven. More than 95% people are from here, so that means their cost is in Indian rupees and many of them earn in dollars. So, they will have a larger impact than the IT companies with a large part of onsite component where people work in the US so their salaries are also paid in the US. So to that extent, there is less impact . Almost all Indian companies have started hedging their currency positions. Some companies park a part of their dollar deposits abroad, so as to avoid the risk of currency movements.

Companies are trying to bring in efficiency in various ways to mitigate the impact. The improvement in billing rates can offset some of the currency impact. More importantly, new clients are coming in at higher price points. This may be difficult as the local companies are not affected by this trend and compete very well with the global delivery capabilities of the Indian companies.

Software major Infosys’s Chief Executive Officer Kris Gopalakrishnan said on Tuesday that his company was ready for an acquisition that would cost $500 million or even more, but ruled out hostile buyouts.

“Given Infosys’s size, 500 is do-able. It does not mean something smaller or larger won’t happen,” Gopalakrishnan told reporters during a visit to the capital.

The biggest acquisition made by Infosys until now is a complex deal involving Philips, in which a multi-year contract value was blended with takeover of the Dutch electronics giant’s business process outsourcing (BPO) facilities and 1,400 workers. That deal was pegged  at an estimated $250 million but the actual payout for the facilities cost only $28 million.

Wipro announced this year India’s biggest overseas buyout, when it moved to acquire Nasdaq-listed Infocrossing for $600 million.

Gopalakrishnan said Infosys looked to bridge service skill gaps or map an entry into a key geographical area through its acquisitions and also ensure that employees of the acquired company would stay back. Besides, the valuation factor would be critical, he said.

The cash chest of about $1.5 billion that Infosys has can be used for quick deployment in the case of an acquisition, and also is in line with its founders philosophy of avoiding debt, Gopalakrishnan said.

The company sees more business opportunities from the ongoing integration of Royal Bank of Scotland and ABN Amro, after an RBN-led consortium successfully bid to acquire the Dutch group. Both RBS and ABN Amro are key customers for Infosys and offer scope in an age in which technology integration is vital for success in financial services.

Gopalakrishnan said his company was in the race for about 15 international deals involving revenues of more than $100 million, but large deals could take eight to 12 months to achieve closure, he said.

Infosys, the country’s second-largest software and services firm, expects to close 15 overseas deals, each worth over $100 million, in the next 10 months, company managing director and CEO S Gopalakrishnan said on Tuesday. It has also identified three to five acquisition targets overseas, including a consulting firm.

“We are in the race for 15 deals of over $100 million outside India,” Mr Gopalakrishnan, or Kris as he is known in the industry, said. The company is also looking at closing smaller deals worth $10-15 million in the same time period.
For acquisitions, Infosys has set aside about $500 million. In July this year, Infosys BPO had signed a $250-million outsourcing contract with Royal Philips Electronics, which included the $28-million acquisition of its three shared service centres in India, Poland and Thailand.

“Our acquisitions need to provide new technology platforms or should provide access to new markets. We are cautious in selecting target companies — looking not only for strategic fits but also ability to retain employees and alignment of values, culture, and ethics,” Kris said. The company is not in favour of hostile takeovers.
Infosys, which recently created a new business unit to cater to the India market, also expects the domestic market to contribute over 5% of its revenue over the next five years. Currently, about 3% of Infosys’ revenues come from the domestic market.

“While India would contribute about 5% of our revenue over the next few years, it would be time before it becomes a big market for us,” Kris said. The company is targeting financial services, telecom, manufacturing and retail sectors in India. He said the addressable Indian IT services market is worth about $5-6 billion.