TCS vs Genpact: BPO rankings may change with narrowing revenue gap

Written by P P Thimmaya | Bangalore | Updated: Nov 16 2013, 16:01pm hrs
TCSQuarterly revenue gap between the current leader Genpact and second in rank TCS narrowed to just about $4 million during the recently concluded September quarter.
The pecking order of the countrys top two business process outsourcing (BPO) companies is likely to witness a change shortly. With the quarterly revenue gap between the current leader Genpact and second in rank Tata Consultancy Services (TCS) narrowing to just about $4 million during the recently concluded September quarter, the race between the two companies has acquired a new spirit. Significantly, a year ago, the gap in BPO revenue between the two was around $17 million.

During the July-September stretch of the current fiscal, Genpacts revenue from the BPO business was at $401.9 million while that for TCS stood at $397.1 million, revealing a difference of just about $4 million.

Growth rates of these firms in recent times have shown a distinct change in flavour. Genpact at the end of September quarter recorded a year-on-year growth of 6.9% in its BPO business while for TCS it was 10.4%. Added to this, Genpact has already revised downward its FY13 revenue outlook to $2.12-2.13 billion from its earlier projection of $2.15-2.20 billion on account of lower-than-expected revenue, providing an indication that it is unlikely to grow faster than its current level.

The top slot among the BPO companies in India has always been held by Genpact. According to data from IT-BPO trade body Nasscom, Genpact has maintained its numero uno position for the last five fiscals while TCS, which ranked fifth in 2007-08, has steadily moved up to the second spot in the last few years. The other India-based BPO firms in the FY13 top 10 list include Serco Global Services, Aegis, Wipro BPO, Infosys BPO, Firstsource, WNS, Aditya Birla Minacs and EXL.

According to Nasscom, the current $18-billion Indian BPO industry is expected to grow at about 13% compound annual growth rate to touch $50 billion as an industry by 2020.

Industry watchers believe that this narrowing gap could do with the changing dynamics of the global IT-BPO outsourcing and offshoring industry with companies giving out contracts combining both these services. Today, those companies are in advantageous position who have a strong footing both in the IT and BPO segments and software-services majors play very well into this sweet spot.

To keep pace with the changing business demand, Gurgaon-based Genpact has made its headway into the IT services segment largely through acquisitions. At the end of September quarter, the companys net revenues from IT services was $133, up $17.9 million, or 15.5%, from the third quarter of 2012, primarily driven by its organic business and the acquisition of the US-based Jawood Business, an IT consulting firm focusing on the healthcare sector.

The largest acquisition by Genpact was of Headstrong, an IT services and consulting company in April 2011, for $550 million. Besides, it has has made several smaller acquisitions in the IT services space.

The NYSE-listed BPO firm, which has majority of its employees based in India at the end of September quarter got 75.1% of its revenues from BPO services, compared to 76.6% in the same period last year.

However, revenue from IT services were 24.9% of the total revenue during the quarter, up from 23.4%, a year ago. As of September, Genpact had about 62,200 employees across 24 countries.

Last year US-private equity major Bain Capital acquired a 30% stake in Genpact for $1 billion. The PE firm bought the stake from General Atlantic and Oak Hill Capital.

TCS, which reported a consolidated revenue of $3.33 billion at the end of September quarter, has the BPO share at 11.9%. The countrys largest IT services exporter made a couple of acquisitions in the BPO space to ramp its operations. The first acquisition was of UK-based Pearl Group for $94.7 million in 2005 while the largest was Citigroups captive BPO operations in India for $512 million in 2008.