Despite the slowdown taking a toll on the profits and margins of the country?s information technology (IT) companies, business process outsourcing (BPO) firms ? both integrated and pure-play ? continue to buck the trend.
The signs of growth are not slowing down as the country?s largest IT firm Tata Consultancy Services (TCS) saw a ramp up on its BPO operations in the quarter while a third of Infosys? planned recruitment is for its BPO operations.
Within BPO, which constituted almost 35% of the total contract value (TCV) in the first half of 2012, while 91% of the current revenue share is from deals with TCV of $25 million, revenue growth in this segment over the past five years stands at 38%, whereas in the $10-25 million range, revenue growth has been 148% during this period. At the same time, contracts growth has been 72% in the former, and 124% in the latter category. In fact, margins in the BPO arms of IT firms are in the 20-25% range, an growing by the quarter.
?Both integrated and pureplay BPOs have shown healthier growth than their IT counterparts because they have been transforming themselves since 2008 when they were faced with a difficult economic environment. The BPOs reinvented themselves through platforms, building onsite presence and investing in technologies like big data which are yielding results now,? said Sangeeta Gupta, vice-president, Nasscom.
Experts opine that because BPOs manage the operations side of their clients? business, which is non-discretionary in nature, they have performed better than the IT firms.
According to Swami Swaminathan, CEO and MD of Infosys BPO, the company has grown from being transactional to transformational due to which the margins have moved up a few percentage points.
?This time there is a ramp up on the BPO side. There are three or four other engagements that have started, one big telco engagement, and one media engagement has started. So those things would have brought in incremental revenues,? said N Chandrasekaran, CEO and MD, TCS.
Among services, BPO was the key driver of growth for TCS in the quarter, contributing 60% of the incremental revenues, helped by a life insurance and pension platform deal.
Incidentally, TCS? net profit rose 37% compared with 56% of Genpact which is the largest BPO. HCL Technologies, which has been restructuring its BPO business, expects to break even in this segment this year. This segment made $22 million loss last year, which is not the case now.
?We are defocussing on voice BPO which stands at 39% at present compared with 60% two years back. The billable rate per employee is too going up in BPO meaning that the business is becoming non linear,? added Rahul Singh, president, buisness services division, HCL Technologies.
?BPOs usually do run the business kind of work and have started moving away from voice to non-voice side of the business thereby moving up the value chain. This has made the business non-linear (less dependent on headcount) thereby increasing profitability,? said Dipen Shah, head of fundamental research, Kotak Securities.